I can't believe the administration - especially Tim Geithner - is still trying to excuse their ineptitude on the housing crisis. I mean, we've read the books from administration insiders like Sheila Bair and Neal Barofsky since they've left, and they complain about the same thing: Tim Geithner's fixation on helping the banks instead at the expense of homeowners, and Obama's acquiescence to Geithner's choice. Until it's acknowledged that this was the wrong decision, I don't have much faith in the ones they're going to make now:

One year and one month before President Obama won reelection, he invited seven of the world’s top economists into a private meeting in the Oval Office for their advice on what do to fix an ailing economy. “I’m not asking you to consider the political feasibility of things,” he told them in the previously unreported meeting.

There was a former Federal Reserve vice chairman, a Nobel laureate, one of the world’s foremost experts on financial crises and the chief economist of the International Monetary Fund , among others. Nearly to a tee, they said Obama should introduce a much bigger plan to forgive part of the mortgage debt owed by millions of homeowners underwater on their properties.

Obama was reserved in response, but Treasury Secretary Timothy F. Geithner interjected that he didn’t think anything of such ambition was possible. “How do we get this done through Congress?” he asked. “What could we actually do that we haven’t done?”

The meeting highlighted what today is the biggest disagreement between some of the world’s top economists and the Obama administration. The economists say the president could have significantly accelerated the slow economic recovery if he had better addressed the overhang of mortgage debt left burdening Americans when housing prices collapsed. Obama’s advisers say that they did all they could on the housing front and that other factors better explain why the recovery has been slow.

The question is relevant because though Obama won a victory earlier this month, the vast majority of voters still say the economy is weak and not getting better. Policymakers in Washington are now focused on another type of debt — the public debt owed by all taxpayers — but the slow economic recovery, which depresses tax revenue, makes that problem harder to solve.

[...] “Housing was the neglected piece. They have the kind of attitude that they don’t believe this is a good value for the money, this is politically unpopular, and there’s not much we can do,” said Alan Blinder, a former Fed vice chairman consulted frequently by the White House. “There were obvious things to do that academics and others started pointing out back in 2008. That could have shortened the recovery time.”

Obama’s economic advisers dispute that notion. Geithner said the administration chose the best of the feasible options to deal with the housing crisis.

“We knew the hit to wealth would be damaging. We knew the level of debt had the potential to restrain the strength of recovery,” Geithner said in an interview. “The only issue was, what could you do about it? What were the feasible options available?”

It's unlikely that any of Wall Street's criminals will ever go to jail, but maybe if we kick up enough of a fuss, we can get Jamie Dimon kicked off the board of the NY Fed. Not that there's anything wrong with sitting on the board of the agency that's supposed to oversee you, of course! It's been this way for so long, they don't even understand why we'd be upset about it:

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon’s position as a director on the Federal Reserve Bank of New York’s board renewed concern that the central bank is too close to the institutions it oversees.

Dimon, who disclosed a $2 billion trading loss by his firm last week, is one of three bankers sitting on the New York Fed’s board, as mandated by Congress under the Federal Reserve Act. While directors have no role in bank supervision, Elizabeth Warren, a Massachusetts Democrat running for U.S. Senate, called for Dimon’s removal from the district bank board because the New York Fed regulates JPMorgan. Senator Bernard Sanders, a Vermont Independent, said he sees a conflict in Dimon’s two roles.

Fed governance came under scrutiny after taxpayer-funded bailouts during the 2008 financial crisis sparked a political backlash. The Dodd-Frank Act overhauling bank supervision required a Government Accountability Office audit of the central bank, which was completed last year and found the Fed needs to strengthen policies governing conflicts of interest and improve transparency.

Having bankers on the boards of regional Fed banks “is a problem, period,” said Sheila Bair, senior adviser at Pew Charitable Trusts and a former chairman of the Federal Deposit Insurance Corp. “Why the regional banks have members of the industry that they regulate on their boards is beyond me.”

It's funny, isn't it, how the women are the ones with the loudest voices on this issue?

Warren, a Democrat, has served in the Office of the President and as chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program. She helped establish the Consumer Financial Protection Bureau.

“After the biggest financial crisis in generations, the American people are frustrated that Wall Street has still not been held accountable and does not appear to consider itself responsible,” she said. “Dimon should resign from his post at the New York Fed to send a signal to the American people that Wall Street bankers get it and to show that they understand the need for responsibility and accountability.”

I have to wonder: At what point, if ever, will they deal with this crisis head on0? Is this their version of aggressive action? It puzzle me that hey're more concerned about the real estate foreclosure market than the fact that they people buying those houses may not have a clear title:

(Reuters) - President Barack Obama's housing secretary said on Sunday "it's shameful" that financial institutions may have made the housing crisis worse by improperly processing foreclosures.

Shaun Donovan, secretary of the Department of Housing and Urban Development, said in a column on the Huffington Post website that a comprehensive review of the foreclosure crisis was under way and that the administration would respond with "the full force of the law where problems are found."

[...] Federal Deposit Insurance Corp. Chairman Sheila Bair said in an interview on C-SPAN's "Newsmakers" that regulators needed to gauge the scope of the improper processing.

"We have been told that this is a process issue - that all of the information is in the file, the problem is the person who needed to sign the affidavit had not been looking at the file before they'd done so. So we need to independently verify that," Bair said.

"Foreclosure is a very serious thing and it should only being undertaken after loan modification efforts are not feasible. And that the files are fully documented."

Really? After all the information that's come out in the past few weeks, you're still giving them the benefit of the doubt?

Donovan, in his column, wrote: "The recent revelations about foreclosure processing -- that some banks may be repossessing the homes of families improperly -- has rightly outraged the American people."

"The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating -- it's shameful," Donovan added.

[...] "Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good -- hurting homeowners and home-buyers alike at a time when foreclosed homes make up 25 percent of home sales," Donovan added.

Bair also urged banks to do "rigorous internal analysis" about the range of possible risk exposures in the foreclosure crisis.

"We need to get a full handle on all of these issues," she said. "If it turns out this is just a process issue then I don't anticipate the exposures to be significant.

"If it turns out to be something more fundamental then we'll have to deal with that. But I think we need to get all the information before we jump to any conclusions."

You see why the bully boys of Wall Street dislike Sheila Bair - and Elizabeth Warren? Because they actually think of the people hurt by the financial industry's long, drunken binge and are trying to repair the damage. No wonder these women are unpopular with the in crowd:

FDIC Chairman Sheila Bair indicated Thursday that she is exploring the idea of reducing the principal on as much as $45 billion in mortgages her agency has acquired from failed banks.

That would be the first significant government attempt to employ a measure that some economists and consumer advocates have long argued is the only really effective way to stop foreclosures.

Although the $45 billion in mortgages only amounts to less than half of one percent of mortgages nationwide, the move would be significant because the idea of reducing principal has been all but dismissed for the last nine months by the Obama administration.

Economists like Yale University's John Geanakoplos, however, have argued that cutting the principal on delinquent loans should have been the administration's practice all along. For the nearly quarter of American homeowners who owe more on their mortgage than the house is worth, it's by far the best way to keep them in their homes and reduce foreclosures, Geanakoplos said in an interview last month.

Bair made her comments in an interview with Bloomberg News. She has not yet discussed her proposal with the Treasury Department, a senior administration official said Thursday in a brief interview. Though unfamiliar with the details of her proposal, the official said it was promising.

The Federal Deposit Insurance Corporation no longer owns the mortgages directly; but when it sold them to solvent banks, it agreed to shoulder some of the future losses. Bair's move would effectively make sure that homeowners directly benefit from that guarantee, not just the lenders.

Interesting. So Dodd's proposal would effectively remove Sheila Bair's role as one of the few senior administration officials advocating for consumers. (We already know bankers don't like her.) Still, it sounds like a few good ideas here, I'll wait to see how this shakes out.

Nov. 10 (Bloomberg) -- Senator Christopher Dodd will propose creating a single U.S. regulator that would strip the Federal Reserve and Federal Deposit Insurance Corp. of bank-supervision authority, said a person familiar with the matter.

Dodd, chairman of the Senate Banking Committee, would eliminate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and fold the Treasury Department units into the new bank regulator, according to the person, who spoke on condition of anonymity because the plan isn’t public. The Connecticut Democrat is scheduled to release a draft of his financial-regulation overhaul plan today in Washington.

“It makes sense to have one regulator that deals with supervision,” Gilbert Schwartz, a former Fed attorney and a partner at Washington law firm Schwartz & Ballen LLP, said in an interview. “You’ll see a real battle by the Fed and the FDIC to retain their supervisory authority.”

Dodd has faulted the U.S. bank regulation system, saying it encourages charter shopping and a “race to the bottom” by agencies to win oversight roles. His proposal goes further than proposals by President Barack Obama and House Financial Services Committee Chairman Barney Frank to merge the OTS and OCC.

[...] Dodd will also propose creating a Consumer Financial Protection Agency, a council of regulators to monitor large firms for disruptive effects on the industry and the economy, and giving the FDIC power to unwind failed firms whose collapse in bankruptcy could shake the economy, the person said.

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Via Raw Story, the heartwarming news that bankers aren't getting to celebrate in peace at their annual conference:

The annual American Bankers Association meeting in Chicago is not going as planned.

Besieged by activists from the Service Employees International Union, the AFL-CIO and Americans for Financial Reform, the leaders of America's financial sector were interrupted Sunday night as a throng of protesters poured into the conference area and began to chant.

The meeting, scheduled to continue through Tuesday, will feature "[exceptional] speakers like FDIC Chairman Sheila Bair, Comptroller of the Currency John Dugan, former Speaker of the House Newt Gingrich, and political commentator George Will," the ABA's site announced.

"All we wanted to do was deliver a letter to the Wall Street bankers to let them know how much they've hurt our communities - and what they need to do to clean up their act," the SEIU's blog declared. "They wouldn't listen to us. They kicked us out. But the bad news for them is that we'll be back.

Instead of delivering a letter, they shouted their message. "Bust up big banks!" activists chanted. When police confronted a senior who was damning the ABA over a loudspeaker, the crowd shifted into cries of "Shame on you! Shame on you!"

When police finally got around to pushing them out, cheers of "We'll be back" shook the hotel's lobby.

"Our demand is simple: stop taking our tax dollars and squandering them away on billion dollar bonuses and massive lobbying campaigns against financial reform," the SEIU said.

Someone's sounding just a little touchy, aren't they? Yes, Tim, you and your buddies from Wall St. have done such a bang-up job, I can understand why you're upset by all these questions:

WASHINGTON -- Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf.

Mr. Geithner told the regulators Friday that "enough is enough," said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.

Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.

Friday's roughly hour-long meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies.

Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators.

"You are talking about tremendous regulatory power being invested in whatever this entity is going to be," Ms. Bair told the Senate Banking Committee last month. "And I think, in terms of checks and balances, it's also helpful to have multiple views being expressed and coming to a consensus."

Bair testified yesterday in front of the Senate committee on Banking, Housing and Urban Affairs and she probably caused Geithner's blood pressure to shoot through the roof. Oh well! I'm a big fan of hers and I appreciate her consistent support of workers and small business.

The New Yorker has a great profile of Sheila Bair, the populist Republican who's at the helm of the FDIC. (h/t Riverdaughter)

As you may already know, Bair is not well liked by the Wall St. crowd that's running the White House show. (Apparently she has this bizarre idea that her job is to look out for working folk. Crazy talk!) Well, she's very popular with regular people - the administration wouldn't get rid of her, it would make a stink. Instead, they've just neutered her:

These debates entered into the Administration’s discussions about building a new regulatory architecture. In late March, Geithner previewed for Congress some of the key concepts that Treasury wanted. The outline seemed to match the Bair camp’s ideas. [Ladies, has this ever happened to you?] A new authority with the power to take over large financial institutions that posed a systemic risk to the economy was modeled on the F.D.I.C., which, Geithner suggested in his testimony, would be an equal partner with Treasury in resolving such firms if they failed. He seemed to be saying that although he and Bair may have disagreed about how to handle the current crisis, there was much more consensus about how to deal with a future one.

But in the white paper detailing the new legislation, which the Administration released on June 17th, all the new authority to regulate firms that posed systemic risk was vested in the Federal Reserve. During Geithner’s testimony before the Senate, Jim Bunning, of Kentucky, echoing Bair, was incredulous. “It took fourteen years for the Fed to write one regulation on mortgages after we gave it the power to do that,” he said. “What makes you think that the Fed will do better this time around?” In addition, while the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June — when Bair’s aggressive ideas about how to handle Citigroup leaked to the press — Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick.

The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”

When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.

You know, it's getting hard to read between the lines these days. This NY Times story about FDIC chair Sheila Bair, the only Bush official who's been looking out for homeowners facing foreclosure, has all the signs of a classic hit job: Unnamed sources (even "a representive of IndyMac" who remains unknown) expressing deep concern that Bair is a hot dog whose so-called policies don't work.

The only question remains is, who's trashing her - and why?

I read recently that the Obama team wants to dump her (more unnamed sources, of course). So is Bair as good as I've heard, and is being targeted for ruffling the Good Old Boys' feathers, or is she a self-promoting hot dog? You'd never know from reading this story. It's a masterwork of insinuation.

Boy, I wish there was a real newspaper I could read that could make that distinction, draw a credible conclusion and bolster it with facts people would back - on the record.

Hey, New York Times, here's a thought: instead of asking unnamed sources for quotes on her policies, why not do your homework?

I just can't figure out why the Obama administration sees this as a bad thing. Maybe it'll cut into Wall Street's obscene profits, but other than that, what's the down side?

A Senate proposal to force banks to shed their lucrative yet risk-laden derivatives units -- which is vehemently opposed by Wall Street -- is gaining steam, picking up the support of some regional Federal Reserve chiefs with more on the way.

Yet President Barack Obama's Treasury Department, led by Timothy Geithner, continues to oppose the measure, Senate aides say, who add that Treasury is supporting Wall Street over Main Street by opposing the measure considered of "utmost importance" to financial stability.

"It shows the access of the major Wall Street banks in the Treasury Department in spades," one Senate aide said on the condition of anonymity. Assistant Treasury Secretary for Financial Institutions Michael S. Barr is said to be leading Treasury's efforts.

Senate aides say that more letters of support from other regional Fed presidents are on the way.

Treasury is joined in its opposition to the measure by the Federal Reserve's Washington-based Board of Governors and the head of the Federal Deposit Insurance Corporation, Sheila Bair.

Meanwhile, supporters include the longest-serving policy maker in the Fed, Federal Reserve Bank of Kansas City President Thomas Hoenig, Federal Reserve Bank of Dallas President Richard Fisher, Nobel Prize-winning economist Joseph Stiglitz and House Speaker Nancy Pelosi.

Hoenig and Fisher wrote letters of support last week to Senate Agriculture Committee Chairman Blanche Lincoln, the author of the provision, referring to it as "of utmost importance to our nation's long-term financial and economic stability."

Seems like a common-sense move, right? Actually, the federal government has been subsidizing the derivatives market for a long time. Robert Reich explains why it should stop:

Bernanke’s logic is absurd on its face. In a May 12 letter to Christopher Dodd, he argues that “depository institutions use derivatives to help mitigate the risks of their normal banking activities.” True, but so what? Lincoln’s measure would allow banks to continue to use derivatives. They just couldn’t rely on their government-insured deposits for the necessary capital.

Banks would have to do their derivative trading in separate entites. This would require them to raise additional capital, but why is that a problem? If derivative trading is so useful to them in order to “mitigate the risks” of other banking activities, the banks should be willing to foot the bill. There’s no reason taxpayers should do so. And absolutely no reason taxpayers should have to pick up the tab when banks make bad bets on derivatives.

Bernanke also says Lincoln’s measure would force derivatives activities “into foreign firms that operate outside the boundaries of our Federal regulatory system,” giving foreign banks “a competitive advantage over U.S. banking firms in the global derivatives marketplace.” Even if Bernanke is right, since when is it the business of American taxpayers to guarantee the profitability of America’s largest banks relative to foreign ones?

If policy makers base their decisions on this specious logic, America’s big banks shouldn’t be required to hold any capital at all – for fear they might lose business to a foreign bank that’s not required to.

The trading of derivatives is not so crucial to the American economy that taxpayers should continue to subsidize the practice. If the last two years have taught us anything, the lesson is just the opposite: Derivatives can generate huge risks for the economy unless carefully regulated. Neither logic nor experience suggests that you and I and every other taxpayer should be subsidizing this gambling.

Worse yet, if we continue to subsidize these derivative trading operations, Wall Street’s biggest banks will grow even bigger. They’re already too big to fail.