Sen. Elizabeth Warren and Rep. Elijah E. Cummings sent a letter to Fed Chairman Ben Bernanke and Comptroller Thomas Curry, challenging a decision by agency staff not to supply documents related to violations of federal and state law by mortgage servicing companies. This is why we wanted her, and by gum, it's good to have her!

At a meeting yesterday, Warren, Cummings, and Rep. Maxine Waters, Ranking Member of the House Financial Services Committee, were informed by staff from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) that they would not produce any documents relating to specific mortgage servicers involving illegal foreclosures, inflated fees, or fraudulent court documents. Staff from the agencies claimed these documents are the “trade secrets” of mortgage servicing companies and should be withheld from Members of Congress because producing them could be interpreted as a waiver of their authority to withhold proprietary business information from the public.

“We strongly believe that documents should not be withheld from any Member of Congress based on the flawed argument that illegal activity by banks is somehow their proprietary business information. Breaking the law is not a corporate trade secret,” wrote the Members. “As regulators, you identified systemic and widespread abuses two years ago, and concealing important information about these violations limits our ability to fulfill our responsibility to conduct oversight over the actions of mortgage servicing companies and to develop legislation to protect our constituents from further abuse.”

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At this point, I think anything that the Fed does is like voodoo. It almost doesn't matter if it works, as long as the market thinks it does:

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“We’re looking for ongoing, sustained improvement in the labor market,” Chairman Ben S. Bernanke said in his press conference today in Washington following the conclusion of a two-day meeting of the Federal Open Market Committee. “There’s not a specific number we have in mind. What we’ve seen in the last six months isn’t it.”

Stocks jumped, sending benchmark indexes to the highest levels since 2007, and gold climbed as the Fed said it will continue buying assets, undertake additional purchases and employ other policy tools as appropriate “if the outlook for the labor market does not improve substantially.”

Ezra Klein seems to think the new round of quantitative easing from the Federal Reserve is a BFD, and will send an encouraging signal to the markets:

The Federal Reserve’s announcement Thursday is a big deal.

It’s a big deal because of what they’re doing. They’re buying $85 billion in assets every month through the end of the year, and then they’re potentially going to keep doing it in 2013. They’re promising to keep interest rates low through the recovery, and then keep them low after the recovery strengthens.

But it’s a bigger deal because of what they’re saying. Thursday, the Federal Reserve said, finally, that they’re not content with 8 percent unemployment and a sluggish recovery, and they’re willing to actually do something about it. If you’re an investor or a business owner trying to decide what the market is going to look like next year, you just got a lot more optimistic.

That’s the weird thing about the Federal Reserve. We don’t just care about what they do. Because their power is so vast — the ability to make as much real, American money as you want is quite a superpower — we care about what they want in the future. And, until Thursday, we weren’t getting much clarity on what they wanted in the future, or how far they were willing to go to achieve it.

Ian Welsh says no, it won't help the people who need it the most:

The Fed has announced its third quantitative easing program. To state what should be obvious, the effect on the economy for ordinary people will be minimal, as with QE1 and 2. It will help banks, financial firms most, other large corporations will also benefit. If you work at the executive level in one of those organizations, it will help you and raise your salary or bonuses. It will not significantly raise demand for goods and services and will not do much for the rest of the economy. Remember, 93% of the gains of the Obama recovery went to the rich, and that was not by mistake.

Atrios is not quite as gloomy as Ian, but close:

So we're going to have more goosing of financial asset prices. Bernanke said something about how we'll all go spend money when we see that our 401Ks are doing better. So a lot more money for rich people, a tiny bit more for some of the rest of us, and some hopey that it causes the economy to go WHEEEEEEEEEEEEEEEEEEE.

Krugman says not bad:

That’s all good. However, it’s kind of vague. No clear target, whether nominal GDP or some kind of inflation/unemployment mix. Put it this way: you could imagine a future Fed chairman tightening policy in line with the same Taylor rule that seemed to describe policy before the crisis — a rule that suggests that interest rates wouldn’t start to go up until unemployment was below, say, 7 percent — and still being able to claim that he had not violated any promise Bernanke made. In other words, it’s not totally clear that we really do have a shift in future policy. And since the whole point is to move expectations, leaving this kind of wiggle room is not a good thing.

It took the journalists at Bloomberg News two years - and presumably lots of legal fees - to pry information out of the Federal Reserve that should have been made public long ago. We now know that the Fed's secret $7.7 trillion lending program wasn't just the most massive bank bailout ever seen, and it wasn't just free money for mega-bankers - though it was certainly both of those things. It was also the greatest hoax in stock market history.

No, scratch that. It was the greatest hoax in the history of money. And it was built on lies. How many? Let us count the ways.

Here's the first one: The banks paid back all the money back that they were given. No, they didn't. They paid back the principal on these loans. But by obtaining loans at rates far below market value, we now know they received the equivalent of $13 billion in cash giveaways.

Here's another lie: Fed economists support a free-market economy.

Ben Bernanke is a conservative economist who claims to support a free-market system. But we now know that the Federal Reserve lent astonishing sums to US banks in secret, and Bernanke fought with all the resources at his disposal to ensure that this information didn't become public. He didn't just want it to be held back to avoid a panic during the crisis. He wanted it kept secret forever.

I don't know what you call somebody like that, but I know what you don't call him: A capitalist. Free markets need transparency, so that investors and customers can make informed decisions and 'the wisdom of the market' can prevail. Nobody wanted the market to do its job. When it came to banks, they wanted it to be blind, deaf, and dumb, unable to make sound judgments about their financial soundness.

They still want it that way. They don't want investors to know how badly Wall Street executives failed at their jobs. They don't want the free market to do what it does best - thin the herd so it's free of incompetent managers like the executives who still run our largest banks.

You can believe in the free market, ur you can believe in today's Wall Street. But you can't do both.

Here's another lie, one that's spread by Dimon and others: Giant banks are more efficient. Size brings efficiency in other kinds of business, but these banks needed massive help. America's six largest banks accounted on any given day for an average of 63 percent of the debt on these loans. The only thing they're more efficient at is wringing free money out of government-created institutions.

And, wow. Jamie Dimon sure is a hypocrite. As Bloomberg noted:

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed's Term Auction Facility "at the request of the Federal Reserve to help motivate others to use the system." He didn't say that the New York-based bank's total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program's creation.

He also didn't mention that these favorable loans gave his bank nearly half a billion dollars in cash it otherwise wouldn't have had. Know what's convenient about that? It helps make up for the three-quarters of a billion Dimon's bank gave up to settle charges of bribery and corruption in Jefferson County, Alabama.

Chase borrowed massive sums of money, either because it was in bigger trouble than it has admitted or because it was bleeding an emergency public program out of greed. Either way, they weren't doing anybody a favor except themselves. How big a favor? Chase netted $457.9 million.

Citigroup's an even more extreme example. Once our largest bank (until continued mismanagement led to ongoing shrinkage). It only exists because Robert Rubin and other officials in the Clinton Administration,cleared the way for the largest merger in history with the enthusiastic support of the Republicans. That merger combined a bank with an insurance company, a harbinger of bad things to come in the risk area.

Citigroup's got the equivalent of a $1.8 billion gift, courtesy of Uncle Sam.

Bank of America CEO Brian Moynihan sneers at his critics, especially those who think you shouldn't foreclose on families without obtaining proof that you own their mortgage. "Oh, sure," he said in response to government demands, "we'll do our homework."

Bank of America's gift came to $1.5 billion.

Goldman Sachs shouldn't have been eligible for any Fed giveaways because it wasn't a commercial bank. But a special "waiver" allowed Goldman allowed to become commercial bank so it could be rescued from actions it took before it was a commercial bank. Before that it was an investment bank. Yet, strangely, it seems to have kept operating as an investment bank even after the transition, too, even though commercial banks aren't allowed to do that.

Understand that? Don't take it personally if you don't. You're not supposed to.

Goldman Sachs's take? Just under $1 billion.

Washington's always telling us that bankers may have done naughty things, but they weren't illegal things. That gets us to our next lie: There's no evidence that bank executives have committed crimes. Thanks to Massachusetts Attorney General Martha Coakley, we may be about to discover whether that's true regarding foreclosures and mortgage filings. But when it comes to stock fraud, the evidence is already piling up.

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Gov. Rick Perry is wasting no time in establishing his John Bircher/tea party credentials as he lashed out at Ben Bernanke and used thuggish and violent rhetoric to make his point.

Texas Governor Rick Perry, who entered the presidential campaign on Saturday, appeared to suggest a violent response would be warranted should Federal Reserve Chairman Ben Bernanke “print more money” between now and the election. Speaking just now in Iowa, Perry said, “If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treasonous in my opinion.” Treason is a capital offense.

Talking treason is something knows well since he has articulated his belief that Texas should secede from the U.S. The only thing that surprises me in this clip is that he didn't demand that America returns to the gold standard. If I were Ben, I'd stay clear of Texas. Perry seems to be in the race to take away Michele Bachmann's supporters so that Mitt Romney can be the nominee. And maybe Rick gets the VP job as a thanks. But any way you look at it, politicians in the United States of America should not be threatening individual members of the government. There's already been too much violence the last three years and some nut wouldn't hesitate to lash out at Ben.

What's even more hilarious is that Karl Rove, the mastermind behind one of the worst president's of all time is attacking Perry via GOP12:

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"The chief consequence of the conservatives' unrelenting faith in the badness of government," Thomas Franks wrote three years ago in The Wrecking Crew, "is bad government." But would happen if virtually every article of that faith were wrong or, much worse, a blatant lie? Then you'd have something that looks very much like the crisis over the soon-to-be breached U.S. debt ceiling. After all, despite the dire warnings of impending doom from economists, the Federal Reserve, Wall Street ratings agencies, GOP-friendly business groups and even some of their leaders, many Republicans would sooner see the United States default and its recovery destroyed than follow the dictates of either national interest or reason. And it's all because the Republican prime directive - political power at any cost - trumps the truth.

Arizona's Jon Kyl, the second-ranking Senate Republican, gave the game away in April when his office declared his slander of Planned Parenthood was "not intended to be a factual statement." So it is for just about every GOP talking point. Tax cuts don't "pay for themselves." The GOP job creators didn't create jobs after the Bush tax cuts, though they did when their taxes were higher. There are neither "death panels" nor a "government takeover of health care" in the Affordable Care Act which, despite Republican myth-making, actually reduces the national debt over the next decade. Barack Obama isn't a Muslim, but he was born in the United States. Public employees are not overpaid and vote fraud does not threaten American democracy. Global warming isn't "the greatest hoax ever perpetrated on the American people." And we did not go to war in Iraq "because we were attacked."

Despicable and dangerous as these frauds are, they didn't threaten to destroy the American economy in a matter of days and with it, the global financial system.

It's not as if the Republican "default deniers" and "debt kamikazes" weren't warned.

On the same day last week, the U.S. Chamber of Commerce, Federal Reserve Chairman Ben Bernanke and Wall Street rating agencies joined the ever-louder chorus of voices warning Republicans that failure to raise the U.S. debt ceiling would result in "calamity." Those pleas followed a new analysis by the Bipartisan Policy Center concluded that failure to boost the debt ceiling by the August drop-dead window would force the U.S. Treasury to immediately slash spending by 44%. As The Hill reported, "On an annualized basis, the cut in spending alone is a 10 percent cut in GDP, BPC scholar Jay Powell told reporters." The IMF similarly cautioned that "the debt ceiling should be raised as soon as possible to avoid damage to the economy and world financial markets." 235 economists - including six Nobel Prize winners - signed an open letter to Congressional leaders urging them to raise the ceiling, and to do so "without attaching drastic and potentially dangerous reductions in federal spending." Failure to do so, they warned, "could push the United States back into recession." So it came as no surprise when Treasury Secretary Tim Geithner declared on Thursday, "We're running out of time" to avoid what Ezra Klein deemed the "catastrophic calculations" of default.

But Republicans don't need to take Geithner's word for it. They can heed the words of their party bosses.

In their few moments of candor, GOP leaders expressed agreement with Tim Geithner's assessment that default by the U.S. "would have a catastrophic economic impact that would be felt by every American." The specter of a global financial cataclysm has been described as resulting in "severe harm" (McCain economic adviser Mark Zandi), "financial collapse and calamity throughout the world" (Senator Lindsey Graham) and "you can't not raise the debt ceiling" (House Budget Committee Chairman Paul Ryan). In January, even Speaker John Boehner acknowledged as much:

"That would be a financial disaster, not only for our country but for the worldwide economy. Remember, the American people on Election Day said, 'we want to cut spending and we want to create jobs.' And you can't create jobs if you default on the federal debt."

Nevertheless, eight month after he warned his new GOP House majority that "we're going to have to deal with it as adults" and three months after he told a Tea Party gathering that "we're going to have to raise it again in the future," Speaker Boehner this week acknowledged that at least 60 GOP Congressmen "won't vote to raise the debt ceiling under any circumstances."

Boehner's head count doesn't begin to do justice to the Republican fiscal recklessness bordering on dementia.

For months, Republican presidential candidates Michele Bachmann and Tim Pawlenty led the default denier chorus. While Mitt Romney joined Rick Santorum, Newt Gingrich and Ron Paul in supporting the "Cut, Cap and Balance" Pledge which demands a balanced budget amendment and draconian spending cuts as conditions of raising the debt ceiling. This week, the House and Senate will vote on their respective versions of the Cut, Cap and Balance Act, which among other things would require supermajorities to raise taxes or breach a federal spending cap targeted at 18% of U.S. gross domestic product.

As it turns out, outlays by the federal government haven't been as low as 18% of GDP since 1966. (That's why the Simpson-Bowles Commission created by President Obama and opposed by Senate Republicans set a 21% target.) As it turns out, the 98% of Republicans in Congress voted for Paul Ryan's budget plan would fail their own Cut, Cap and Balance test. As Ezra Klein explained in April:

House Republicans voted to make the Ryan budget law. But the Ryan budget includes $6 trillion in new debt over the next 10 years, which means that to become law, the Ryan budget would require a substantial increase in the debt ceiling. But before the Republicans agree to increase the debt ceiling so that the budget they passed can become law, Republicans are demanding the passage of either a balanced budget amendment that would make the Ryan budget unconstitutional or a spending cap that the Ryan budget would, in certain years (and if you're using more realistic numbers, in all years), exceed.

Nevertheless, House Republicans, pressured by Tea Party zealots, have been digging in their heels. This week, Congressmen Louie Gohmert (R-TX) and Steve King (R-IA) joined Bachmann in calling the Obama administration's warnings about the August 2 deadline lies. (Not to be outdone, Sarah Palin, who previously blasted "Timothy Geithner's false statements to the American people," tweeted "Obama lies, economy dies.") Georgia Rep. Paul Broun called for the debt ceiling to be lowered to $13 trillion, would necessitate immediately cutting roughly three-fourths of all federal spending. And while Arkansas Rep. Eric "Rick" Crawford announced that a default "wouldn't work for just a few days, that would work for a few years," his freshman colleague Mo Brooks (R-AL) insisted no debt ceiling increase, no problem. As the Washington Post reported:

"There should be no default on August 2," Brooks said. "In fact, our credit rating should be improved by not raising the debt ceiling."

That stands in contrast to a warning from Moody's. The rating agency said Wednesday that it might downgrade the U.S. government's top-notch credit rating, "given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default."

It's now wonder conservative columnist David Brooks fretted that the GOP is no longer "a normal party." Or as former Bush Treasury Secretary Paul O'Neill put it:

"The people who are threatening not to pass the debt ceiling are our version of al Qaeda terrorists. Really. They're really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk."

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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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Despite Bernie Sanders' commonsense arguments, Bernanke squeaked through. Well, good luck with that, I guess. I find what comfort I can in Paul Krugman's prediction that if Bernanke wasn't approved, they'd end up giving in to the Republicans and picking someone who's even worse:

WASHINGTON — The Senate gave Ben S. Bernanke a second four-year term as the head of the Federal Reserve on Thursday after critics excoriated the central bank’s conduct in the years leading up to the financial crisis.

The 70-to-30 vote was the weakest endorsement ever extended to a chairman in the Fed’s 96-year history.

The confirmation was a victory for President Obama, who had called Mr. Bernanke an architect of the recovery, but also signaled the extent to which the Fed, once little known to the public, has become the object of outrage over high unemployment and bank bailouts.

A commenter over at Matt Taibbi's blog makes some excellent if painful points about this week's election results, and it was so good, so much to the heart of the matter, that I thought you would all want to read it:

The idiot pundits proclaiming this as a protest to Obama’s “overreach” are just morons and deserve to be ignored by anyone with half a brain. In a just world, bankers would wipe out their savings, after which they’d be fired and have to stand in today’s unemployment lines.

The lesson Obama should take from this is that people are not fooled by Obama throwing out platitudes like “I didn’t run for President to please fat-cat bankers” and then appointing people like Tim Geithner of Goldman Sachs to Treasury, keeping Ben Bernanke around, and having people who caused the economic pain for so many people like Larry Summers and Robert Rubin as his economic advisors. And are not fooled when he does nothing but mouth platitudes, or makes a scene of phoning a bank to tell them not to buy a plane, as the largest round of banking bonuses is handed out the year after they did the financial equivalent of blowing up the world. And are not fooled when he gives a speech to Wall Street politely requesting them not to be so greedy, and that they don’t need to wait for him to enact legislation to change their behavior. And are not fooled when all the popular elements of reform like a public insurance option are gutted out of the health care reform bill in order to “pass something” and call it a win, and then lie that you “never campaigned on a public option” (for someone who ran such a new-media campaign, it’s pretty brazen to act like in 2010, people don’t have the YouTubes!).

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Now this is exactly what we've been worried about: that Wall Street would successfully push Obama for an early end to economic stimulus (which also includes extended unemployment benefits, by the way), just as bankers and Republicans did with FDR in 1937 - tipping the country right back into recession. (Krugman's been sounding the alarm for a while.)

I predict Bernanke will withdraw anything that makes it look like they don't have faith in a spring recovery, hoping to use it as a placebo effect.

And as to the millions of us still looking for work, and whose unemployment checks are about to run out? Morgan Stanley responds that there's "never an easy time to do it." I hope Mr. Roach has a big yard, since we're all going to be camping in it:

Jan. 5 (Bloomberg) -- Morgan Stanley Asia Ltd. Chairman Stephen Roach said U.S. policy makers should start to exit emergency stimulus measures now if the economic recovery is as strong as they say it is.

“There is never an easy time to do it,” Roach said on Bloomberg Television today. “The longer they wait, the greater the chance they sow the seeds for the next bubble. So I’m in favor of an early exit strategy.”

The Federal Reserve on Dec. 16 pledged to keep interest rates “exceptionally low” for an “extended period” even as officials said financial markets were healthy enough to allow most emergency lending programs to expire at the end of this month. Chairman Ben S. Bernanke and his fellow policy makers cut the benchmark rate almost to zero in December 2008.

“We’ve seen the most extraordinary monetary stimulus on the record in the 15, 16 months post-Lehman Brothers,” Roach said. “We’ll have to see the most extraordinary withdrawal of stimulus on record” and “if this recovery is as strong as Bernanke and markets think it is, the time to exit is now.”

Data since the Nov. 3-4 Fed meeting showed that “economic activity has continued to pick up and that the deterioration in the labor market is abating,” the Open Market Committee said in a Dec. 16 statement. “Financial market conditions have become more supportive of economic growth,” while the economy is “likely to remain weak for a time,” policy makers said.

The Post has an in-depth look at how the Fed was oblivious to the nation's looming major banking crisis, and the political maneuvering that will determine its future operation:

The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.

Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.

"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."

He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.

Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.

The central bank's performance has sparked a great debate about its future as a regulator, pitting those who want to expand its role against those who want to strip its powers. It also has come under pressure from politicians seeking greater oversight of its primary job, adjusting interest rates to moderate economic growth. The battles have complicated Bernanke's bid for a second term as chairman. The Senate Banking Committee voted to approve Bernanke 16 to 7 on Thursday, setting the stage for a January battle on the Senate floor.

The Fed's failure to foresee the crisis or to require adequate safeguards happened in part because it did not understand the risks that banks were taking, according to documents and interviews with more than three dozen current and former government officials, bank executives and regulatory experts.

Regulatory agencies exist to lean against the wind. But rather than looking for warning signs, the Fed had joined -- and at times defined -- the mainstream consensus among policymakers that financial innovations had made banking safer. Bernanke said the economy had entered an era of smaller and less frequent downturns, which he and others called "the great moderation."