Why on earth would your librul media not want to investigate how outgoing Treasury Secretary Tim "Turbo Tax" Geithner was accused of leaking inside information to Wall Street --by the Richmond Fed president? I can't imagine, because it does seem like a story to those of us outside the Beltway bubble. Maybe the complicit ladies and gentlemen of the corporate media could get up off their knees and, you know, actually cover this story? Maybe earn those paychecks for doing something other than parroting the conventional wisdom of the elite?

Columbia Journalism Review's Ryan Chittum, about the 2007 Federal Reserve transcripts released last week:

Of all the majors, Reuters does the best, and it advances the story by getting Lacker to stand by his 2007 comments about Geithner and to expand them to include other banks beyond BofA:

“My understanding was that (New York Fed) President Geithner had discussed a reduction in the discount rate with these banks in connection with these initiatives.”

But Reuters still falls well short of telling the whole story here. It doesn’t take the obvious next step and look at what happened in markets that day.

For that we turn to… Zero Hedge, which appears to have been the first to spot the Geithner-Lacker exchange last Friday:

What makes this much more interesting, as Zero Hedge notices, is that the Lacker-Geithner spat came at about 6:15 p.m. on August 16, four hours after stocks had jumped a stunning 4 percent in the span of sixty minutes.

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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.

Paul Krugman is doing the rounds on his book tour (I saw him here in Philadelphia Tuesday night—yeah, I'm a dork, I got him to autograph my copy) and here he is on Democracy Now! to pound the drum for government spending. Oddly enough, Krugman's been accused of supporting austerity cuts, which just isn't true. For an hour, all he did was talk about how the government needed to spend our way out of this.

AMY GOODMAN: Well, for the remainder of the hour, we’re joined now by one of the world’s leading economists, Paul Krugman. He is a Nobel Prize-winning economist, an op-ed columnist for the New York Times, also professor of economics at Princeton University and centenary professor at the London School of Economics. His latest book is End This Depression Now!

Paul Krugman, welcome back to Democracy Now!

PAUL KRUGMAN: Good morning.

AMY GOODMAN: How do we end this depression now?

PAUL KRUGMAN: Spend. I mean, it’s really—it’s actually—the economics is really easy. If we were to spend more money at the government level, and actually, at this point, largely, just rehire the schoolteachers, firefighters, police officers who have been laid off in the last several years because of cutbacks at the state and local level, we would be a long way back towards full employment. Other things to do, we could talk about monetary policy, debt relief for homeowners and students. But the core of it is, right now, there just is not enough spending, and we need the government, which can do it, to step in and provide the demand we need.

AMY GOODMAN: To say the least, you’re going against the accepted dogma on all television among the so-called leaders of our country. Spend? In a time when the government has the debt the size it has?

PAUL KRUGMAN: Right. So you can always say, "Oh, you know, $14 trillion." Everything about the U.S. economy is huge. Investors don’t think it’s a problem. Investors are willing to lend the U.S. government money at 1.8 percent interest. This is not the time. I’ll be all for worrying about the budget deficit once the—once the economy is off the bottom. But it is not off the bottom. We are in a depression. This is the time to spend.

AMY GOODMAN: Where do you get the money?

PAUL KRUGMAN: Borrow it, and then repay it later in better times, which is not at all—that may sound funny, but that’s exactly what we’ve done in the past. That’s exactly—how did we get out of the Great Depression? We got out of it by—actually, we got out of it before World War II, but thanks to the spending that preceded World War II, thanks to the military buildup. A little factoid people may not know, just this morning: Which of the major economies in the advanced world grew fastest in the first quarter of 2012? The surprise answer is Japan. Why is that happening? It’s because Japan is now spending a lot of money reconstructing after the tsunami. And that spending is driving rapid growth in Japan right now. We could all be doing that.

AMY GOODMAN: Let’s go to Mitt Romney for a moment, the presidential candidate’s economic plans and his critique of the Obama White House. This is what he said Wednesday at a campaign stop in Iowa.

MITT ROMNEY: President Obama is an old-school liberal whose first instinct is to see free enterprise as the villain and government as the hero. America counted on President Obama to rescue the economy, to tame the deficit and help create jobs. Instead, he bailed out the public sector, gave billions of your dollars to companies of his friends, and added almost as much debt to this country as all the prior presidents combined. The consequence is that we are now enduring the most tepid recovery in modern history.

AMY GOODMAN: Your response to Mitt Romney, Paul Krugman?

PAUL KRUGMAN: Boy, you know, don’t even know where to start. I mean, Romney’s technique is that—since basically every word he says is a lie, including "a," "and" and "the," you never know where to start. But this is—the idea that the—first of all, that Obama is responsible for the large deficits is just not true. It’s overwhelmingly the result of the Bush tax cuts, unfunded wars and a terrible economic crisis that began, of course, under Bush. The idea that the deficits are what’s holding us back is all wrong. The deficits are in fact what’s keeping us afloat. If we had tried to balance the budget, we would now be in a full, full-on replay of the Great Depression. So it’s all nonsense. It’s—and, by the way, the idea of Obama as somebody who governs from the left, I mean, Obama is—Obama’s positions are those of a moderate Republican circa 1992. It’s not—he’s not a leftist. What’s happening now is you have a radical-right Republic Party.

AMY GOODMAN: Well, let’s talk about the Republicans, to House Speaker John Boehner, recently addressed the Peter G. Peterson Foundation’s 2012 Fiscal Summit.

SPEAKER JOHN BOEHNER: The failure of stimulus, a word people in Washington refuse to say anymore, has sparked a rebellion against overspending, overtaxation and overregulation. Americans who take pride in living on a budget recognize that we can’t go on spending money that we don’t have. And our economy is stuck in large part because it is stuck with debt.

AMY GOODMAN: House Speaker Boehner also advocated making long-term changes to programs such as Social Security.

SPEAKER JOHN BOEHNER: We can eliminate all the unfunded liabilities in Social Security, Medicare and Medicaid tomorrow, and the effect on the congressional budget 10-year window could be minimal. That’s because changes to these programs take time and need to be phased in slowly.

AMY GOODMAN: That’s House Speaker Boehner, who has also just revived the debt ceiling—the debt ceiling threat.

PAUL KRUGMAN: Yeah, so—boy, again, let’s leave aside the long-run budget stuff for the moment, and let’s just talk about—the idea that stimulus failed, it was never tried. Take a look at the actual track of government spending in the United States, and take into account the state and local governments as well as the federal, and what you see is, far from actually having a big increase in spending, we’ve actually had much lower. We’ve had austerity in the face of a recession, in a way that we have never had before since the 1930s. So it’s actually been the reverse.

And look, we’ve just done an experiment with what happens if you cut government spending sharply in the face of a depressed economy. That’s what’s been going on in Europe. It’s been going on in an extreme form. I’ve been saying, actually, we’ve basically had a large-scale human experiment, the kind that is banned under Princeton University rules, going on on the people of Greece, Spain, Portugal and Ireland. And the results are clear: it’s disastrous. It leads to very, very sharp economic contractions. Here, we’re having a minor version, though still terrible, of the Great Depression; there, they’re having a full-on replay of the Great Depression.

AMY GOODMAN: Contrast it with Argentina.

PAUL KRUGMAN: Ah, Argentina is an interesting story, because they broke all the rules. There are two countries that we talk about now, actually, people like me. One is Argentina. Argentina had something that was a little bit like the euro. They had a supposedly permanent commitment: one peso, one dollar. Became impossible, fell apart. There was a period of about six months of economic chaos, following, to be honest, then a rapid recovery. Argentina bounced back strongly because they were competitive again. The weaker peso made them able to export. You know, and they defied all the predictions of ruin.

The other story, which is more contemporary, is Iceland, which, in effect, did the same thing. Iceland, because of—the funny thing is, Iceland, the sheer scale of the financial disaster meant that they could not be orthodox. It was not possible. So they were forced to allow a devaluation, have some temporary controls on capital, repudiate some of the debt their bankers ran up. Iceland has a lower unemployment rate than we do right now. So, those are the stories that we should be looking to as examples that say this does not have to be happening.

AMY GOODMAN: So, right now, President Krugman—and that’s not making a mistake—what do you do starting today?

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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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We will continue to see the economic effects of the "extend and pretend" philosophy of pumping massive amounts of public money into failing banks for a very long time. (Thank God we taught those homeowners a moral lesson by refusing to help them, huh?) Yes, the banks lied about their stability, the regulators lied to the public, and no, they really didn't pay back TARP in full. But at least we didn't allow homeowners to get a break, and that's the most important thing (as a bunch of millionaires courageously decided).

It's a shame that the European Union isn't learning from our mistakes, either:

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

Go read the whole infuriating story. Apparently passing "too big to fail" regulation would have been "punishing success." Meanwhile, senior citizens who are living in their cars and dumpster diving for food because these bastards crashed the economy? Losers!

While Krugman had positive things to say about Obama's jobs plan (click on the link for the rest), I think the more interesting news here is his report that Chicago's Federal Reserve chief gave a speech about unemployment:

First things first: I was favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected. It’s not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment.

Of course, it isn’t likely to become law, thanks to GOP. opposition. Nor is anything else likely to happen that will do much to help the 14 million Americans out of work. And that is both a tragedy and an outrage.

Before I get to the Obama plan, let me talk about the other important economic speech of the week, which was given by Charles Evans, the president of the Federal Reserve of Chicago. Mr. Evans said, forthrightly, what some of us have been hoping to hear from Fed officials for years now.

As Mr. Evans pointed out, the Fed, both as a matter of law and as a matter of social responsibility, should try to keep both inflation and unemployment low — and while inflation seems likely to stay near or below the Fed’s target of around 2 percent, unemployment remains extremely high.

So how should the Fed be reacting? Mr. Evans: “Imagine that inflation was running at 5 percent against our inflation objective of 2 percent. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”

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(Click here for larger image.)

If nothing else, the debt ceiling crisis provided what Barack Obama is so fond of calling a "teachable moment." Hopefully, that extends to the President himself. After seeing his nominees blocked, his legislation filibustered and popular upper-income tax increases delayed by Republicans who withheld their support from his watered down stimulus and health care programs, President Obama nevertheless continued to seek common ground with those whose only goal remains his political destruction. The result was as painful as it was predictable.

As for the rest of us, here are 25 things we learned during the debt crisis.

(1) We learned that Republicans really care about the national debt, but only when a Democrat is in the White House. As Dick Cheney put it, "Reagan proved deficits don't matter."

(2) We learned that the national debt tripled under Ronald Reagan, forcing him to raise the debt ceiling 17 times. Overwhelmed by the torrents of red ink unleashed by his supply-side tax cuts of 1981, Reagan raised taxes eleven times while in office. (His deficit reduction initiatives of 1982, 1984 and 1987 relied on over 75% in new tax revenue.) It's no wonder Reagan called the mountain of debt he bequeathed to America his greatest regret.

(3) We learned that George W. Bush nearly doubled the national debt, leaving Barack Obama a $1.2 trillion annual deficit and almost $11 trillion in debt on January 20, 2009.

(4) We learned that the Bush tax cuts were the single biggest factor in erasing the projected surpluses Dubya inherited from Bill Clinton. The Bush tax cuts of 2001 and 2003 accounted for almost half of the red ink during his tenure, and if made permanent, would contribute more to the debt over the next decade than Iraq, Afghanistan, the recession, the stimulus and TARP combined.

(5) We learned that tax cuts don't "pay for themselves" or "always increase revenues." Only in 2005 did federal tax revenue reach the pre-Bush tax cut levels of 2000.

(6) We learned that the Republicans' so-called job creators don't create jobs when their taxes are low. In fact, the data show that the far more jobs were created and the economy grew much more quickly when the top 1% of income earners paid higher - even much higher - taxes.

(7) We learned that for John Boehner, some "spending binges" are more equal than others. While spending under Barack Obama rose by about 10% from George W. Bush's last budget in FY 2009, federal outlays almost doubled between 2001 and 2009. As it turns out, the two unfunded wars in Afghanistan and Iraq, the budget-busting Bush tax cuts of 2001 and 2003 (the first war-time tax cut in modern U.S. history) and the Medicare prescription drug program drained the U.S. Treasury. Mitch McConnell, John Boehner and Eric Cantor voted for all of it.

(8) We learned that Republicans have short memories. When Eric Cantor complained recently that "what I don't think the White House understands is how difficult it is for fiscal conservatives to say they're going to vote for a debt ceiling increase," he apparently forgot that Republican majorities voted seven times to raise the debt limit under President Bush. Along with John Boehner, Mitch McConnell and Jon Kyl, Cantor and the current GOP leadership team voted a combined 19 times to increase George W. Bush's borrowing authority by $4 trillion. (That vote tally included a "clean" debt ceiling increase in 2004, backed by 98 current House Republicans and 31 sitting GOP Senators.)

(9) We learned that Republicans are bad at genetics, too. Last Friday, Texas Rep. Jeb Hensarling claimed that for Republicans, raising the debt ceiling is "contrary to our DNA."

(10) We learned that in rare moments of candor, Republicans can speak the truth. In January, Speaker Boehner acknowledged that failure to raise the debt ceiling would cause "financial disaster." And Utah Senator Orrin Hatch explained that when President Bush was in the White House, for Republicans "it was standard practice not to pay for things."

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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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Silly me.

Here I thought that the rule of law actually mattered, and that when the good guys triumphed (three times — twice in Congress, once in the courts) the battle was over, we could enjoy the moment and brace for the next fight. As I wrote yesterday, “The proposed rule that came out from the Fed a while back was reasonably fair to the retailers, which was a major upset given how kind to Wall Street banks the Fed has historically been.”

Silly me for forgetting about the immeasurable political influence of the big banks:

The Federal Reserve said Wednesday that banks can only charge retailers 21 cents each time they swipe a debit card.

The board raised the cap from its initial proposal of 12 cents per swipe. Banks and big payment processors like Visa and Mastercard convinced the Fed that was too low to cover the cost of handling transactions, maintaining networks and preventing fraud.

Banks currently have no limit and charge an average of 44 cents per swipe.

It’s uncommon for the Fed, or any other government regulators for that matter, to change their rules dramatically during the comment period, but this change is a big deal. It’s simply offensive that the Board of Governors decided to give another handout to the Too Big to Fail financial institutions in this manner.

This ruling also pushed back the implementation deadline to Oct. 1, which is later than expected (And for every month that swipe fee reform is delayed, banks snag an extra $1.35 billion in fees, according to The Nilson Report.)

As I wrote yesterday, the Too Big to Fail banks are so big and so powerful that they win almost every battle and undermine almost every regulation — and it has happened again. Today’s craven sellout to the big boys by the Fed is one more reminder of why we need to break these banks apart so they don’t keep running roughshod over our democracy.

Ultimately, there are only two things that will help rescue our economy — and our democracy — from the dangers posed to us by Too Big to Fail banks.

The first is to arrest a lot of Wall Street bank executives for the massive and intentional fraud perpetrated on homeowners, clients, shareholders, and taxpayers. Crimes were clearly committed in great numbers, and those who commit large numbers of crimes — serious, egregious, intentional crimes — should be prosecuted. The kinds of very modest negotiated fines we see coming out of the SEC from time to time — a couple hundred million dollars paid by the shareholders of companies whose quarterly profits and executive bonuses are in the billions — are just not going to change the criminal behavior of so many of those executives.

The second is to break up the Too Big to Fail banks. Period. As long as these banks are as huge as they are (the six largest own assets equivalent to 64 percent of America’s GDP), if they teeter at all, no matter the cause, they will have to be bailed out. And as long as they are that big and powerful — economically and politically — they will always have the ability to unduly influence and, yes, capture and corrupt regulators, members of Congress, and judges so that whatever restraints might be proposed or put on them are eventually weakened, watered down, or swept away. Institutions that big and wealthy and powerful are a threat to our economy and the very basis of our pluralistic democracy.

In the meantime, though, until these two big fundamental things begin to happen, we are left with more modest legislative and regulatory action. This Wednesday, after a brutal fight involving last year’s financial reform legislation, a more recent amendment fight in the Senate, and an exhaustive round of regulatory review by the Federal Reserve, it looks like we will finally have a new regulation put in place on the swipe fee issue — which until now had been completely unregulated and had allowed the big banks and credit card companies to run completely roughshod over consumers and small businesses. I have been working on this issue as part of a truly strange coalition of consumer groups and retailers. The proposed rule that came out from the Fed a while back was reasonably fair to the retailers, which was a major upset given how kind to Wall Street banks the Fed has historically been. This prompted the big banks to scream bloody murder and try to delay the rule in Congress. But after they were once again defeated in another big upset (big Wall Street banks rarely lose Congressional fights either), the rulemaking is going forward. Let’s hope Wall Street doesn’t have another sleazy trick up its sleeve and the Fed finally puts in place the kind of modest new rule they first proposed on swipe fees.

As long as these Wall Street banks are this powerful, this kind of very small reform on very modest issues is all we are left with in terms of restraining these banks. But we’ll take whatever we can get. Let’s hope the Federal Reserve does the right thing on Wednesday.