I am thankful each and every day that Barack Obama won the 2012 election, and that he is our president instead of Mitt Romney. The current version of the Republican Party is the most extreme, cynical, and utterly heartless group of people I have ever witnessed in American politics- and I have witnessed a lot in my 30-plus years in politics. I am proud of the president for the good things he has done on many different issues, and for many of the fights he has chosen to take on.

But on economic policy, and especially on fighting for the middle class, this President has two blind spots the size of a Mack truck.

The first is Wall Street. Obama’s first term Secretary of the Treasury Tim Geithner believed that the most important thing in making the economy work better was to help the biggest banks on Wall Street, and Obama’s current Attorney General openly admits in official testimony to Congress that he is hesitant to prosecute criminals who are executives at big banks because it might hurt those companies, and therefore, apparently, the broader economy. These policies are bad economics, bad morality, and bad politics. This allegiance to Wall Street’s interests has drained vast amounts of money out of productive investments in the real economy, put millions of homeowners underwater on their mortgages or into foreclosure, made big bank execs feel free to commit financial fraud, and allowed continued dangerous speculation in our financial markets that could lead to another financial panic in the not too distant future. These pro-Wall Street policies have slowed the economy down dramatically. Favoring the biggest banks over the rest of the economy is terrible policy if you want to help the middle class.

The other huge blind spot is on Obama’s great desire to strike this “grand bargain”, including cutting Social Security and Medicare benefits. He seems obsessed with the idea, offering it up to the Republicans over and over and over again, no matter how many times they say no. He is dead wrong on this issue, and Democrats in Congress should fight him on it tooth and nail.

On Medicare, there are plenty of ways to save serious money without hurting seniors. Negotiate drug prices, for example. Bring younger, healthier people into the Medicare pool. Ask hospitals, who cut a sweet deal in the health reform negotiating process, to find more cost savings. Squeeze the medical equipment industry more. Re-orient health care toward paying for good outcomes rather than fee for service. There’s a ton of savings to be had if we would take on the big health industry special interests, but Republicans have no interest in doing that. They want to squeeze those old people Paul Ryan describes as the “takers” in society. And because Obama wants to have a grand bargain with the Republicans, he has at various points offered up raising the retirement age (although he seems to have backed away from that offer, which is good given that the blue collar folks helped by Medicare and Social Security don’t enjoy the benefits of longer life expectancy nearly as much as high income people) and means testing Medicare. Do these proposals make good sense? Do they help the middle class? Who cares, we have to be bipartisan!

On Social Security, the president keeps suggesting a benefit cut called Chained CPI. The theory is that when inflation goes up, people can always substitute lower cost items- you know, if the cost of Ferraris heads north you can always switch to buying a Cadillac. The problem is that most seniors these days are retiring without pensions, their houses are worth less than used to be, and they don’t have the kind of savings that earlier generations of seniors did. They aren’t choosing between Ferraris and Cadillacs, they are choosing between cottage cheese and Velveeta at the grocery store. The product substitution thing on inflation that economists theorize about just doesn’t work with people on low fixed incomes.

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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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The news from the world of finance has been incredibly depressing of late, as the big Wall Street banks keep winning round after round in their battles with regulators. The flurry of deals, which in part were closed pre-Jan 1st to allow the banks to clean up their books before the end of the year, were just one big win for the banks after another: the $10 billion Bank of America deal with Fannie Mae; the deal between 2 regulatory agencies and 10 major banks to come up with $3.3 billion dollars for 3.8 million homeowners; the international Basel 3 capitulation caving into everything the big international banks were asking for on regulation. Compared with the size of the crimes, the number of people who got badly hurt, and the amount of money these banks made off the fraudulent deals they committed, this money is pocket change, an insult to the millions of hard working families who have had their lives ripped apart by bank fraud.

Now even the Consumer Financial Protection Bureau, the one agency which has been rightly lauded for fighting for consumers on other issues since it got created due to Elizabeth’s Warren’s work, has caved into Wall Street demands on a new rule they just issued relating to mortgages and given the big banks a major edge against homeowners in legal issues going forward. People at Americans for Financial Reform and the other groups working on these issues tell me they are appalled by these new rules.

The best hope for investigating and prosecuting fraudulent bankers has been in the inter-agency task force co-chaired by NY AG Eric Schneiderman, but the DOJ has refused to give the task force the staff that it needed, and as a result things have been moving slower than molasses, and it is not at all clear at this point whether anything is going to come of it.

Media figures enamored of Wall Street think all this is a swell thing. WP writer Neil Irwin thinks it’s terrific because “every dollar a bank holds as part of its liquidity buffer is a dollar they are not lending out…as a loan to build a factory.” This was Obama’s argument in his first State Of The Union speech, where he talked about how he hated to bail out the banks but only by helping them would they be able to start making loans again so that the economy would recover. It has pretty much been Geithner’s entire philosophy while at Treasury: anything that gets in the way of the big banks’ ability to make money will hurt the economy. The problem is that while the big banks have been swimming in money most of the last 4 years, making record profits and handing out record bonuses to execs in some years, the rest of the economy is flat. Small businesses are still having trouble getting loans, factory start-ups have been slow, housing remains weak even with its recent uptick, and in case nobody has noticed in a DC obsessed by deficits, unemployment is still appallingly high.

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Notice how very, very eager Curious George is at the thought of cutting Social Security. Causing pain to the poor really seems to make these full-fledged Villagers feel powerful! Here's his conversation with Tim Geithner on This Week today:

STEPHANOPOULOS: Let's look at an outline of what the Republicans said they heard in the meeting, your offer. $1.6 trillion in tax increases over the next ten years. $50 billion in stimulus spending right now. $400 billion in unspecified Medicare cuts over the next ten years.

And then permanent authority to increase-- the debt limit. The president wants that authority. They look at that $1.6 trillion in revenue and say it's twice as much as you get from raising taxes on the wealthy again. And much more than Democrats would ever accept in the Senate. That's why they say this is not serious.

GEITHNER: Let me tell you what we propose, what we think makes sense. And let me start with part of what you said, which is how to make sure we're lifting the threat of default over the American economy, over the credit of the United States, over the savings of Americans. What we've proposed is to take an idea that Senator McConnell proposed last-- in the summer of 2011 and just extend that.

And what that does is, again, lift the cloud of default over the economy 'cause the president has to periodically propose an increase in the debt limit. And Congress then has a chance to express its view to disapprove that. And-- it's-- it's a very-- it was a very smart way by a senator with impeccable Republican credentials to again, lift this-- this threat, this periodic-- threat of default in the American economy. And that's an essential thing for us.

STEPHANOPOULOS: He said he never intended it to be permanent.

GEITHNER: But, you know, again, it's-- it was a good idea then, it’s a good idea going forward. And again, it came from him. It wasn't our idea. That makes a lotta sense. Now, what you said that was not quite right is what we've laid out for them is a detailed comprehensive set of $600 billion of reforms in health programs, other government programs over 10 years, which are gonna be tough, but th-- we think they make sense.

Now-- they-- they don't like all of those changes. They might wanna go beyond that, might wanna do some different things. But they have to tell us what those things are. Now, you're right on the revenue side. We're proposing to let rates go back to the Clinton levels on 2 percent on Americans. Again, that was a very good time for the American economy. We can-- that's-- that would be a good thing to do, a sensible economic policy.

And we wanna combine that with tax reforms that would limit deductions for the top 2 percent of Americans. There's no surprise in this. We've been proposing this for a very long time. The president campaigned on it. And I think that's where we're gonna end up. And I think there's gonna be very broad support from – the business community and for the-- from the American people for-- an agreement with roughly that shape.

STEPHANOPOULOS: And when you talk about limiting the deductions, there had been proposals from Governor Romney during the presidential campaign, from other Republicans to also limit deductions. Maybe a $25,000 cap on deductions. When you talk about those limitations on deductions, do you include-- the charitable deduction and the home mortgage deduction?

GEITHNER: Well, I think you're right to point out the essential problem in this, which is that if you try to limit deductions like what you said with the $25,000 cap, what you do is you end up hitting millions and millions, actually 17 million middle class Americans. A huge part of the revenue comes from that basic fact, which we're not prepared to do.

It completely eliminates the incentives for relatively wealthy Americans to give to charities. We don't think that makes sense. And if you protect charitable contributions, you lose a huge amount of additional revenue. So those proposals-- you know, they may-- may be worth considering. But if you design them carefully, they don't raise anything close to the type of revenue you need to get us back to a fiscally responsible position.

STEPHANOPOULOS: Are you saying now that charitable deductions should be off the table?

GEITHNER: What we've proposed and we think is a better way to do it, which is, we proposed to - a percentage limit on the value of all deductions and exclusions for 2 percent of Americans. And what that does is, it preserves a very significant economic incentive, financial incentives for Americans to give to charities.

And, of course, that's very important to all universities across America, all hospitals and millions and millions of non-profit entities across the country – that – depend on those giving. And we think that's a better way to do it. That-- that slightly reduces the marginal benefit of the deduction. But-- but it preserves the substantial incentive to give to charity. We think-that's a better way to do it.

STEPHANOPOULOS: I think one of the things the Republicans wanna know is if the president is still behind ideas that he has seemed to back in the past. For example-- gradually raising the eligibility age for Medicare-- this adjustment in Social Security payments, the so-called chained CPI, which would adjust the cost of living adjustments over time for people on Social Security. Is the president still behind those ideas?

GEITHNER: You know, there-- there's a lotta ideas out there, George, from Democrats and Republicans of other things we can do to help strengthen Medicare and strengthen Social Security. And you know, what I can do is to tell you the merits of the specific things we propose which, again, have very substantial savings over 10 years. $600 billion-- billions of dollars. And when Republicans come to us and say, "We'd like to do something different or beyond that," we'll tell-- take a look at how to do that. And if it meets our basic values and our tests, then we'll give it a serious consideration.

STEPHANOPOULOS: So you're even willing to consider new restrictions on Social Security, because people like Sen. –

GEITHNER: No-- no, I didn't say that. Let me clarify, that's very-- and thank you for asking me that. What the president is willing to do is to work with Democrats and Republicans to strengthen Social Security for future generations so Americans can approach retirement with dignity and with the confidence they can retire-- with a modest guaranteed benefit. But we think you have to do that in a separate process so that our seniors aren't-- don't face the concern that we're somehow gonna find savings in Social Security benefits to help reduce the other deficits—

STEPHANOPOULOS: So to be clear, that is one thing that is clearly off the table. Social Security is off the table in these negotiations?

GEITHNER: Well, we're prepared to, in a separate process, look at how to strengthen Social Security. But not as part of a process to reduce the other deficits the country faces.

So this appears to be the new strategy: Break off the most controversial pieces of the Grand Bargain and push them later. Well, that's good news. It gives us more time to organize.

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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?”

There is finally, finally, finally some momentum starting to build toward accountability for the biggest banks. The results of the election will determine whether it continues to build or completely fades away.

I will be the first to admit that there is a certain irony in that last sentence. Tim Geithner and Eric Holder haven’t exactly been jumping up and down in excitement to prosecute the Too Big To Fail banks for their evident fraud in pumping up the housing bubble and making billions off it. The wheels of justice have turned pathetically slowly. Martin Luther King said that “the arc of the moral universe is long, but it curves toward justice”, but in the case of banks this big and powerful, that arc is even longer. Inch by inch, though, the wheels long stalled have begun to move, and now the pace is beginning to pick up.

In the last several weeks, JP Morgan (twice), Wells Fargo, and now this week Bank of America have all been taken to court by different parts of the government. And while we don’t know how things will turn out, none of these are small potato cases. Together, they represent the broadest cases against the TBTF banks that we have seen since the crisis hit. And the Residential Mortgage Backed Securities task force co-chair says that more are coming.

My colleagues in the Wall Street accountability movement, burned by the lack of action from the DOJ for 4 years, have been understandably skeptical of the RMBS task force, especially when it took what seemed like forever to bring its first case. But without that commission from the President, I don’t think any of these cases would have been brought, because it focused resources (definitely not enough, but some) on investigations, and it raised the political stakes on not doing anything.

Where this heads next will be fascinating. I suspect what Schneiderman and the other more aggressive prosecutors in the task force want to do is to build a web of tough, broad cases against these banks in order to given them maximum leverage. Such a legal strategy could well reap major benefits as investigations proceed.

But imagine a scenario where President Obama loses, and the Democrats lose the majority in the Senate.

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The federal regulator for government-backed mortgage giants Fannie Mae and Freddie Mac said Tuesday that he would not allow the firms to reduce loan balances of troubled borrowers, saying there would be no clear-cut financial benefit and that such a move could cause some homeowners to intentionally default in hopes of getting taxpayer aid.

“We concluded that the potential benefit was too small and uncertain, relative to the known and unknown costs and risks,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency.

The decision came after months of internal analysis at FHFA and sustained pressure from the Obama administration, Democratic lawmakers on Capitol Hill and housing advocates, who argued that so-called “principal reduction” was an essential tool needed in helping to soften the fallout of the housing crisis.

Reaction to DeMarco’s decision came swiftly Tuesday afternoon.

Treasury Secretary Timothy F. Geithner struck an unusually personal tone in chastising DeMarco for his decision, even while acknowledging DeMarco’s role as an independent regulator of Fannie and Freddie.

“Five years into the housing crisis, millions of homeowners are still struggling to stay in their homes and the legacy of the crisis continues to weigh on the market,” Geithner wrote in a letter to DeMarco on Tuesday. “You have the power to help more struggling homeowners and help heal the remaining damage from the housing crisis.”

Paul Krugman responded by calling for DeMarco to be fired:

DeMarco’s basis for the rejection was that this forgiveness would represent a net loss to taxpayers, even if his agency came out ahead.

That’s a very arguable point even on its own terms, because the paper he cited (pdf) in support of his stance took no account of the positive effects on the economy of debt relief — even though those effects are the main reason for offering such relief. Since a reduction in debt burdens would strengthen the economy, this would mean greater revenue — and this might well offset any losses from the debt forgiveness itself.

Furthermore, even if there’s a small net cost to taxpayers, debt relief is still worth doing if it yields large economic benefits.

In any case, however, deciding whether debt relief is a good policy for the nation as a whole is not DeMarco’s job. His job — as long as he keeps it, which I hope is a very short period of time — is to run his agency. If the Secretary of the Treasury, acting on behalf of the president, believes that it is in the national interest to spend some taxpayer funds on debt relief, in a way that actually improves the FHFA’s budget position, the agency’s director has no business deciding on his own that he prefers not to act.

I don’t know what DeMarco’s specific legal mandate is. But there is simply no way that it makes sense for an agency director to use his position to block implementation of the president’s economic policy, not because it would hurt his agency’s operations, but simply because he disagrees with that policy.

This guy needs to go.

Krugman's right. It's not DeMarco's job to impose his philosophical orientation on his agency.

Let's be clear: As far back as 2007, banks were charging you more money on just about everything because they were using a fraudulent Libor rate - and Tim Geithner knew it. His response? To write a memo suggesting ways they should fix it. To hell with the little people who got robbed, right, Tim?

The New York Federal Reserve on Friday released documents showing it knew banks were manipulating a key interest rate more than four years ago.

The documents, which date back to 2007, show that the Fed was fully aware that banks were lying about their borrowing costs when setting Libor, and chose to take no action against them.

The documents will likely feed growing concerns about whether the New York Fed, its former chief Timothy Geithner and other market watchdogs did everything they could to stop the manipulation. The documents also raise more questions about whether the New York Fed and other regulators were too cozy with the banks involved, looking the other way in order to spare the banks too much pain at a time when the financial crisis was still brewing.

"We know that we’re not posting um, an honest LIBOR," a Barclays employee tells a New York Fed analyst in an April 11, 2008, call, "and yet we are doing it, because, um, if we didn’t do it, It draws, um, unwanted attention on ourselves."

The New York Fed representative expresses sympathy and understanding:

"You have to accept it," she says. "I understand. Despite it’s against what you would like to do. I understand completely."

The widespread manipulation of Libor, an interest rate set by banks self-reporting what they pay to borrow money for short periods, may have cost borrowers (when rates were manipulated higher) and state and local governments (when rates were manipulated lower) untold millions of dollars. And it could end up costing several banks billions of dollars in penalties and lawsuits.

In the documents released Friday -- at the request of Rep. Randy Neugebauer (R-Tex.), Chairman of the House Financial Services Subcommittee on Oversight and Investigations -- the New York Fed shows it was aware of problems with Libor as early as the fall of 2007.

The documents also show a swirl of activity by the New York Fed in the early months of 2008 relating to Libor, including memos and meetings and phone calls with bankers. Those calls included several conversations with people at Barclays, which recently agreed to pay $450 million to settle charges of manipulating Libor.

The activity culminated in a six-point memo written by then-New York Fed President Tim Geithner to Bank of England chief Mervyn King on June 1, spelling out ways to fix Libor. The documents also show that King agreed with Geithner's suggestions, and said he had passed them on to the proper British authorities.

Up to 16 banks in the U.S. and U.K. are under investigation in the scandal, which appeared to go on for years despite the knowledge of regulators in the U.S. and U.K., raising questions about whether those regulators were complicit in the scandal.

The release of the documents on Friday appears to be an effort to demonstrate that the New York Fed took an active role in trying to stop Libor manipulation -- while also pushing blame off on regulators in London.

"The New York Fed helped to identify problems related to LIBOR and press the relevant authorities in the UK to reform this London-based rate," the New York Fed said in a statement on its Web site.

But though the Fed said it continued to follow developments in Libor after mid-2008, it offers little documentation of that interest, beyond a handful of phone calls. There is no evidence that Geithner's recommendations were acted upon or that the Fed tried to make sure that they were.

"Our contacts at LIBOR contributing banks have indicated a tendency to under-report actual borrowing costs... in order to limit the potential for speculation about the institutions' liquidity problems," one New York Fed analyst wrote in April 2008.

In late October 2008, several months after Geithner's memo to King, a Barclays employee told a New York Fed representative that Libor rates were still "absolute rubbish."

Oh, thank God. I was so worried we would change horses in midstream -- when Geithner's economic guidance has done so much for the entire country:

Treasury Secretary Timothy F. Geithner has told President Obama he plans to remain in his job through the fall of 2012, keeping in place Obama’s longest-serving economic adviser after the first-ever U.S. credit downgrade and renewed fears of a second recession.

Geithner, who has been battling financial crises since 2007 as a top Federal Reserve official and then Treasury secretary, considered leaving the administration after Congress raised the federal debt ceiling and reached an agreement with Obama to tame the national debt.

But several developments have made his departure more difficult. The debt ceiling was raised with only hours to spare. The deal to tame the debt fell short of what Geithner and Obama wanted. The economy has suddenly taken a turn for the worse. And on Friday, Standard & Poor’s downgraded the U.S. credit rating for the first time. And the White House, worried that it would be hard to find a suitable replacement, pressured him to stay.

Geithner told the president Friday morning that he would remain in his post. Hours later, he had to go to the White House to meet with Obama again and tell him the nation would likely lose its AAA credit rating.

On Sunday afternoon, Geithner joined an emergency conference call involving the seven major economic powers to discuss the impact of the downgrade.

“Secretary Geithner has let the president know that he plans to stay on in his position at Treasury,” Treasury spokeswoman Jenni LeCompte said in a statement. “He looks forward to the important work ahead on the challenges facing our great country.”

Geithner tries to spin the debt ceiling deal and answer questions about how cutting spending won't hurt job growth...which makes no sense to a lot of us. I was going to write up a post on this, but Digby covers it rather well, so watch the video here and read her full analysis here:

I have seen some fatuous spin in my day, but this drivel from Tim Geithner is enough to make me gag..read on