I have had a somewhat up-and-down history with the folks in the Obama administration. I was proud to be their liaison to the progressive community during the Obama-Biden Presidential transition, and have labored mightily to help them at several key junctures during this first term. I have been quite critical of them at times on political strategy and specific policies, but have always supported them overall because I know Barack Obama is a far superior President to any of the extremist lunatics in the Republican Party: I definitely prefer a sane, intelligent President to any one of those turkeys. I have been especially appreciative of their outreach to me and other progressives since Rahm Emanuel left for Chicago, and have been thrilled with Obama's new found messaging toughness on jobs and taxing millionaires over the last couple of months. The administration’s messaging strategy, as well as a lot of key policy decisions, has been much stronger in the last couple of months, for which they deserve a large measure of credit. Knowing the stresses of working in the White House, I am impressed with the staff I know for their patience, hard work and dedication, and for being in politics for the right reasons, because I really do believe they are trying to make the world a better place.

But, boy, am I about to get on their bad side. It's not that I am taking any of the above back: I still very much want Obama to win re-election in 2012 against Mr. 1 Percent, Mitt Romney, or any of the other Republicans who might get the nomination. But I fear that without a major change of course, the administration is choosing a path which will be devastating both economically and for them politically in 2012. I figure my friends at the White House getting mad at me is well worth it if I can contribute to saving them from themselves.

This banking deal that I have been writing about for the last week was the subject of a great piece by Gretchen Morgenson in the New York Times, and as more details emerge, it looks even worse than a lot of us who have been following this issue thought it would be. We already knew that the $25 billion fund being created would only cover 5 percent of the underwater mortgage foreclosure problem, but Morgenson reports that most of the $25 billion isn't from the banks themselves, but from taxpayers. A dozen banks would contribute a grand total of $3.5 to $5 billion toward the settlement, pocket change for massive companies that apparently approved their foreclosure mill law firms likely committing over 1,000,000 counts of perjury in the robo-signing process. The rest of the money, about $20 billion, would come in the form of "credits" banks essentially give themselves if they agree to reduce a certain amount of the principal owed on mortgages. We don't know the details yet, but given that all banks in the home lending industry write down some mortgages, unless the details are tough on the banks (a phrase not generally heard of among regulators in this era), this will be giving banks credit for mortgages they would be writing down anyway. And if they don't end up writing down as much as they project, they probably won't end up being penalized for it given the history of programs like HAMP.

And in exchange for the pocket change penalty and agreeing to get credit for doing what they would have done anyway (which would be very big of them), banks would be given legal immunity for all those perjury counts and all the other fraudulent activity done through the MERS corporation — a shell corporation set up by the biggest banks to help them securitize all those mortgages into the financial products that caused the housing bubble and financial panic of 2008.

Now look, I have never been a single-issue person, and I live in DC and work in politics, so I see dirty sweetheart deals for wealthy and powerful special interests all the time. But the housing crisis is the elephant in the room, the most central short-term economic issue that makes everything else pale in comparison. Long term, there are a number of very important economic issues that will determine our nation's future, reviving the manufacturing sector, creating green jobs, and getting wages rising again so the middle class starts to prosper principal among them. But in the short run, if housing stays dead and more than a quarter of homeowners stay underwater in their mortgages, this economy will not start producing significant numbers of new jobs, because the housing problems are so big they will drown everything else out. And giving away so much of the legal leverage we have over these bankers without negotiating to force them to write down those underwater mortgages will guarantee us a dead economy for many years to come. Welcome to Japan’s Lost Decade, squared.

It would be bad enough for Obama to make this economic decision that will likely ensure jobs don't start picking up before next year's election. Even worse for him, though, is the deadliest, most toxic political situation this puts him in. In a front page article in the Washington Post on Oct. 14, it was reported that "President Obama and his team have decided to turn public anger at Wall Street into a central tenet of their re-election strategy." David Plouffe was quoted as saying "We intend to make it [being tough on Wall Street] one of the central elements of the campaign next year." And they are absolutely right to do so, as that kind of populist messaging against the most unpopular institution in America is exactly what the doctor ordered in these tough times. I have been advocating a tough-on-Wall Street message for the Obama White House ever since they took office, and couldn’t have been more pleased to see this emerge as a central strategy. But if the administration rams through this ultimate in Wall Street sweetheart deals — a laughably pocket change fine combined with “credit” for what they would have done anyway, at the expense for a get out of jail free card for 1 million counts of perjury and a wide range of other potential fraud — they will have zero credibility to run as the tough on Wall Street candidate. ZERO. And look, it won't be just me who will notice how bad this deal is — and I'm a ton more sympathetic to the President than many of the people who will. Reporters like Morgenson will keep blasting away. Economists like former IMF chief economist Simon Johnson and Nobel Prize winners Joseph Stiglitz and Paul Krugman will be outraged. The tens of thousands of people occupying cities all across America will turn on the White House. The millions who have signed online petitions on Wall Street issues will be devastated. Organizations that are usually Obama’s allies like labor and MoveOn.org will likely condemn the deal. And at the end of that entire outcry, they will have no credibility left to ever tell voters they are tough on Wall Street. According to exit polls last year, by a sizeable margin more voters blame Wall Street for our economic mess than blame either Obama or Bush, and they were swing voters — the kind of voters who broke for Obama in 2008 and Republicans in 2010. But those voters will have no reason to think Obama will be more on their side instead of on Wall Street's if he pushes this deal through.

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Well, this is disappointing. Although I admit that some of the names being floated as his replacement were as troubling as Geithner's initial appointment. What was that saying about the fox guarding the henhouse?

Treasury Secretary Timothy Geithner remains undecided about whether to remain in his post, but he's under increased pressure from White House officials to stay, people familiar with the matter said Thursday.

Mr. Geithner, who joined the Obama administration at its inception in 2009 and has played a central role in virtually every economic decision, told White House officials several weeks ago he was considering stepping down after the debt ceiling debate concluded so that he could join his family in New York.

But White House officials have asked Mr. Geithner to consider remaining at Treasury, given all the economic challenges facing the country. Personal overtures from Mr. Obama could be hard for Mr. Geithner to reject, though he hasn't reached a decision about what to do, people familiar with the matter said.

He is expected to make a decision soon about his future, people familiar with the matter said.

"As Secretary Geithner has said he hasn't decided when he'll leave, and he has said he will be here for the foreseeable future...that's what he tells us and he's obviously a key member of the economic team," White House spokesman Jay Carney said Thursday.

The New York Times on Thursday reported that Mr. Geithner is expected to stay under White House pressure.

I know that there is grumbling that "changing horses mid-stream" would cause market instability, but I really believe that this coddling of Wall Street is exactly what is keeping economic recovery from happening. And as a deep insider, Geithner was the ultimate coddler. That may be good for campaign coffers, but it's not good for America.

The kabuki debt ceiling jig started back up yesterday when Boehner says he never left the dance.

On CNN State of the Union, Geithner said he sees two paths to raising the debt ceiling, the Obama-Boehner "grand bargain," or the "last ditch" McConnell-Reid proposal. He added that "both sides are getting a lot closer on ... the tough choices," particularly their commitment to preventing default.

They still have time to walk out of meetings and blame each other for this folly until the vote to raise the debt ceiling is finally done. Even if it's been evident that Boehner needs Democratic votes in the HOUSE to pass, Timothy admitted it to Crowley on CNN today. rough transcript:

Geithner: It's been clear for sometime that to get legislation passed, to avert a default credit rating and to solve our fiscal problems this is going to require democrats as well as republicans. I'll tell you I had a conversation with republican leadership after the midterm elections..They said, we're going to need democrats with this debt ceiling thing cause it's going to be very hard for us. They knew from the beginning they'd need democrats to pass the House....and to pass the Senate.

The Tea Party caucus in the HOUSE needs a lot of cover to vote no on any plan that raises the debt ceiling, but how much crow is Pelosi's crew going to eat over this? We can only hope a Grand Bargain that cuts into our social safety nets is not going to happen and we'll have to wait for the info to come out as this dance plays out.

Krugman writes:

What Obama Was Willing to Give Away

Jonathan Cohn summarizes what seems to have been in the deal that Boehner walked away from; it’s horrifying. Above all, the proposed rise in the age of Medicare eligibility was a real betrayal of both Democratic principles and good government..read on

Geithner was very tight lipped about what was being actually discussed in this new/old big deal, but the kabuki continues. Getting up a 5:30 am with coffee not ready yet is not conducive to clear thinking--especially on the topic of the debt ceiling.

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TAPPER: So, the administration has had a number of successes after big battles, stimulus, health care legislation, new rules for Wall Street, but you have a big battle coming when it comes to the Bush tax cuts. If they remain in place, as Republicans want, it will cost three trillion dollars every ten years. The administration has said it wants to keep the ones for people who make under $200,000 a year, individuals and $250,000 for couples. That will cost $2.5 trillion over 10 years. Ben Bernanke the chairman of the Federal Reserve said that with the economic outlook unusually uncertain, extending the Bush tax cuts would have a stimulative effect on the economy. Is he right?

GEITHNER: I don't think it should be a battle, Jake. You know, what the President's proposing to do is to leave in place, to extend tax cuts that go to more than 95 percent of working Americans and to leave in place tax cuts that are very important to incent businesses to hire new pe -- new employees and to invest in expanding output. We think that's a -- the -- it's a very strong package. We think it's the right package. We think it's fair. We think it's responsible. Now, we also think it's responsible to let the tax cuts expire that just go to 2 percent to 3 percent of Americans, the highest earning Americans. We think that's the responsible thing to do because we need to make sure we can show the world that they're willing as a country now to start to make some progress bringing down our long -- our long-term deficits.

TAPPER: Don't you think it will slow economic growth?

GEITHNER: No. Just letting those tax cuts that only go to 2 percent to 3 percent of Americans, the highest earning Americans in the country expire. I do not believe it will have a negative effect on growth.

TAPPER: This package that you're talking about pushing in Congress to -- to save the Bush tax cuts for people under $200,000 individuals and 250 for couples --

GEITHNER: And in fact, we go beyond that. Because you know, we're proposing to extend the [...] tax cut which also goes to 95 percent of working Americans. And a set of very important business tax cuts targeted for small businesses themselves, expensing, zero capital gains rate for investment in small businesses. These things, we think, are very helpful, very powerful.

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UPDATE: First Geithner's assistant, and then Geithner himself deny this story. (Sort of.) He stops short of endorsing Warren but says she's well-qualified.

I'm sure y'all are as shocked as I am that Tiny Tim doesn't want Elizabeth Warren actually in charge of protecting consumers - since she might, you know, actually do her job!

I actually think putting Warren in a more prominent role would be a very smart political move. You want someone this smart, this credible and this tenacious on behalf of consumers as a prominent face of the administration. You never know, some of her credibility might even rub off:

Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner's views.

The financial reform bill passed by the Senate on Thursday mandates the creation of a new federal entity charged with protecting consumers from predatory lenders.

But if Geithner has his way, the most prominent advocate for creating the agency may not be picked to lead it.

Warren, a professor at Harvard Law School whose 2007 journal article advocating the creation of such an agency inspired policymakers to enact it into law, has rocketed to prominence since the onset of the financial crisis as one of the leading reform advocates fighting on behalf of American taxpayers.

Hmm. You know, Alex, I think I'll go with Door No. 2: The Fed knew it was buying weak assets and tried to hide it! Now, what do I win?

Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.

The so-called assets included collateralized debt obligations and mortgage-backed bonds with names like HG-Coll Ltd. 2007-1A that were so distressed, more than $40 million already had been reduced to less than investment-grade by the time the central bankers testified. The government also became the owner of $16 billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.

By using its balance sheet to protect an investment bank against failure, the Fed took on the most credit risk in its 96-year history and increased the chance that Americans would be on the hook for billions of dollars as the central bank began insuring Wall Street firms against collapse. The Fed’s secrecy spurred legislation that will require government audits of the Fed bailouts and force the central bank to reveal recipients of emergency credit.

“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing.

It wasn't even close.

I'd suggest that anyone who hasn't done it yet should find a small bank and move their accounts. Clearly, the people we elected aren't going to do anything about these monster banks:

A move to break up major Wall Street banks failed Thursday night by a vote of 61 to 33.

Three Republicans, Richard Shelby of Alabama, Tom Coburn of Oklahoma and John Ensign of Nevada, voted with 30 Democrats, including Senate Majority Leader Harry Reid of Nevada, in support of the provision. The author of the pending overall financial reform bill in the Senate, Banking Committee Chairman Christopher Dodd, voted against it. (See the full roll call.)

The amendment, sponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), would have required megabanks to be broken down in size and capped so that their individual failure would not bring down the entire system.

Under Brown-Kaufman, no bank could hold more than 10 percent of the total amount of insured deposits, and a limit would have been placed on liabilities of a single bank to two percent of GDP.

In practice, the amendment required the six biggest banks -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley -- to significantly scale down their size. It was touted as a way to end Too Big To Fail.

Though top Obama administration officials have not publicly opposed the amendment, its leading economists have opposed ending Too Big To Fail simply by breaking up the nation's financial behemoths. Austan Goolsbee and Larry Summers have both fought back against this idea, as has Treasury Secretary Timothy Geithner.

"This is certainly a defeat for those who are concerned about the dangers of financial concentration in this country," Kaufman said in a statement after the vote. "Some causes are worth fighting for, and for me, the concern about the risks 'too big to fail' banks pose to the American economy and people is deep and profound given the economic tragedy millions of American have endured. I believe the debate itself -- though failing to gain a majority of votes -- has helped to change attitudes about the degree of financial concentration and power these megabanks now represent."

The President is heading to NYC on Thursday to tout the new financial reform bill which is still being worked on while the Maine Twins are at it again.

Susan Collins flatly rejected it after meeting with Geithner and said she will filibuster it.

Sen. Susan Collins (R-Maine) announced after meeting with Treasury Secretary Timothy Geithner on Monday that she will vote to filibuster a Democratic Wall Street reform bill.

Her announcement hurts Democratic chances of moving financial reform legislation through the Senate this week.

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Collins said she and Geithner found common ground on many areas of financial regulatory reform and urged Democrats to spend several more weeks negotiating the measure. Collins said it was unlikely that her concerns could be addressed within the next few days so that Reid could stick to his schedule...read on.

Meanwhile, Queen Olympia Snowe says that she doesn't mind being the only Republican vote if they work out their differences.

It would be going too far to say Sen. Olympia Snowe (R-ME) is a shoe-in to vote for the Democrats' financial regulatory reform bill. But after a meeting with Treasury Secretary Tim Geithner this afternoon, she sounded much more optimistic about the prospects for a swift bipartisan vote on a slightly modified package than she did last week--and that's even if she's the only Republican who ends up voting with the Democrats.

"I'm optimistic that maybe the Democrats won't go forward with the bill as it is," Snowe told reporters outside her office. "Over the next few days, hopefully, something will change to make that possible. I don't see why it would be impossible because frankly I think that there isn't that much of a gap."

Will the Obama Administration trust Snowe again after what she did on HCR? The administration already caved to Mitch McConnell on the 50 billion dollar liquidation fund that would be paid for by Wall Street and he balked anyway. As is the Luntz way, he wants to start all over again. Will Snowe break the filibuster? Good luck with that.

Men on Football...not necessarily safe for work

Okay, we got beer chilling, the margarita mix standing by, some of my husband's incredible queso dip and chips and barbecued pulled pork sandwiches ready to go, HDTV fired up...it's SUPER BOWL TIME!!!!! Naturally, it's taking a little more than normal concentration to look at what's happening Sunday morning with the anticipation of getting together with friends and family to enjoy the Super Bowl. Nevertheless, concentrate we must, because it's a wide array of bobbleheads this morning, from new State of the Union host Candy Crowley with Hillary Clinton to temporary This Week host Jake Tapper with Timothy Geithner to sell out Fox News Sunday host Mike Wallace with Sarah Palin. Let the games begin.

ABC's "This Week" - Treasury Secretary Timothy Geithner.

CBS' "Face the Nation" - NFL commissioner Roger Goodell.

NBC's "Meet the Press" - John Brennan, President Barack Obama's top counterterrorism adviser; former Treasury Secretary Henry Paulson; former Federal Reserve Chairman Alan Greenspan; Ed Gillespie, former Bush White House counselor; Dee Dee Myers, former press secretary for President Bill Clinton.

NBC's "The Chris Matthews Show" - Panel: Kathleen Parker, Andrew Ross Sorkin, Michael Duffy, Norah O'Donnell. Topics: How President Obama Plans to Recapture His Momentum; Obama's Advice: Ignore the 24/7 Cable and Blogosphere Trash Talk.

CNN's "State of the Union" - Secretary of State Hillary Rodham Clinton

CNN's "Fareed Zakaria GPS" - Is peace in the Middle East still an option? King Abdullah II of Jordan gives Fareed a rare and exclusive interview. Plus, Fareed sits down with (John Yoo,) the man who wrote the infamous "torture memos" for President Bush. It will be a fascinating discussion on terrorism, Guantanamo, and Presidential power.

CNN's "Amanpour" - Veiled Hatred? As France moves closer to a partial ban on the burqa, a leading European lawmaker declared Wednesday that the full Muslim veil is a symbol of political Islam and has no place in Europe. New Global Threat: former US National Security Advisor, Zbigniew Brzezinski talks about the US and others turning their focus to defending interests of "public spaces."

"Fox News Sunday" - Former Gov. Sarah Palin, R-Alaska; Mark Skoda, a talk radio host who helped organize the National Tea Party Convention in Nashville, Tenn.

So, what's catching your eye this morning?

It seems that there is an explanation of Tim Geithner's actions in the backdoor AIG bailout: He didn't know, according to the NY Fed's general counsel:

Jan. 9 (Bloomberg) -- Timothy Geithner, the former Federal Reserve Bank of New York president, wasn’t aware of efforts to limit American International Group Inc.’s bailout disclosures because the regulator’s top lawyer didn’t think the issue merited his attention, the attorney told lawmakers.

“Matters relating to AIG securities law disclosures were not brought to the attention of Mr. Geithner,” Thomas Baxter, general counsel of the New York Fed, said yesterday in a letter to Representative Darrell Issa, a California Republican, and Edolphus Towns, Democrat of New York. “In my judgment as the New York Fed’s chief legal officer, disclosure matters of this nature did not warrant the attention of the president.” Geithner, who helped orchestrate the bailout of AIG when he led the New York Fed, is now Treasury Department secretary.

Geithner and Baxter were asked yesterday to testify before the House Oversight and Government Reform Committee about e- mails from the New York Fed in 2008, when Geithner led the regulator, asking AIG to withhold data about payments to banks. Firms including Goldman Sachs Group Inc. and Societe Generale SA were fully reimbursed on swap guarantees from AIG, prompting Issa to call its rescue a “backdoor bailout” of banks.

Issa said it was “staggering” that Baxter felt he didn’t need to notify Geithner about discussions with New York-based AIG about what records the insurer should make public in Securities and Exchange Commission filings. Baxter’s “letter raises more questions on the inner-workings of the New York Fed during one of the most pivotal periods in our nation’s history,” he said in an e-mail.