congressional

GAO: Treasury Bailed Out 66 Banks With Known Financial Problems, Better Monitoring Needed

October 5, 2010

WASHINGTON — Treasury Department officials sent bailout money to dozens of banks with known financial problems, and a growing number of bailed-out banks are struggling to stay afloat, a new government audit says. Banks seeking money from the $700 billion financial bailout faced different standards depending on which agency regulated them, according to a report Monday from the Government Accountability Office. Some questionable banks got bailouts by persuading Treasury officials to overlook their problems. Others were blocked by regulators from making a case to Treasury. Officials approved bailouts for 66 banks with known problems, the GAO found. Those banks have fared worse than the others in the program. They were twice as likely to miss dividend payments they owed to Treasury, the report says. The report blasts Treasury for failing to track decisions by regulators about which banks could apply for money and which are strong enough to repay. It says the same problems could plague a new program that will send $30 billion to small banks. The new program aims to boost lending by offering banks government money at very low rates. The report comes a day after the expiration of Treasury’s powers under the 2008 bailout law. The GAO’s findings highlight a key political challenge for the Obama administration. Officials must convince skeptical voters that the unpopular program was a success, and that it’s over. Yet billions are still held by banks, an auto maker and an insurance company that can’t afford to repay. Many banks need the money to survive. One indication is the dividend payments that banks owe to Treasury. A growing number of banks can’t afford them. Regulators say paying would leave the banks dangerously short of cash. One hundred and forty-four banks have missed at least one payment, according to the report, which analyzed the Capital Purchase Program, Treasury’s main bank rescue. Another worrying sign: The number of bailed-out banks on the government’s confidential “problem list” is rising. As of June 30, 78 bailed-out banks had problems severe enough to threaten their survival, the GAO said. Treasury spokesman Mark Paustenbach said that the bailout applications were approved by bank regulators. He pointed out that three-fourths of the bank bailout money has been repaid, and said the bank bailouts have yielded $16 billion in extra revenue. “The initiative worked in stabilizing the financial system, and generated a profit for taxpayers,” Paustenbach said. Overall, taxpayers will lose about $66 billion on programs funded by the bailout law, according to the latest estimate from the Congressional Budget Office. Most of the losses are from the rescues of auto makers and the insurance conglomerate American International Group Inc. Banks seeking bailout money applied first to their regulator – a different agency for each type of bank. Some banks were recommended for quick approval. Some were told to withdraw their applications, sparing them public criticism. Those in the middle were forwarded to Treasury. Regulators had different standards for which applications should be withdrawn, the report says. It says Treasury didn’t track those decisions. Treasury also didn’t monitor the regulators’ varying tests for banks seeking to repay the government, the GAO said.

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U.S. Economy Grew At ‘Feeble’ Pace In 2Q As Consumers Remained Cautious

September 30, 2010

WASHINGTON — The nation’s economic growth tailed off sharply in the spring and probably isn’t faring any better now. Gross domestic product – the broadest measure of the economy’s health – expanded at a feeble 1.7 percent annual rate in the April-June quarter, The Commerce Department reported Thursday. That’s a notch higher than the 1.6 percent growth rate the government estimated a month ago. The slight change was mostly due to a little more spending by consumers than first estimated. Still, that’s not enough to have a major impact on the economy. The second quarter estimate is a sharp slowdown from a 3.7 percent growth rate logged in the first quarter. Most economists expect growth to be similarly weak in the July-September quarter, with estimates ranging between 1.5 percent and 2 percent. The government’s first report on third quarter GDP will be released Oct. 29. Unemployment – now at 9.6 percent – is expected to stay high or even rise in the coming months. Americans aren’t spending enough to give companies the kind of confidence in the economy that leads to rapid hiring. Consumers did boost their spending in the second quarter at a 2.2 percent pace. It was a tad better than the government’s previous estimate of 2.0. But it is still considered lackluster for this point in the recovery by historical standards. Economists think consumers will spend at a slightly slower pace through the rest of this year. Consumer spending is important because it accounts for roughly 70 percent of economic activity. In the second quarter, Americans saved 5.9 percent of their disposable income, the most in a year. Before the recession, they saved just 2.1 percent. The economy is the top issue heading into the congressional midterm elections. Voter backlash could cause Democrats to lose control of Congress. GDP measures the value of all goods and services produced in the U.S. The sharp drop off in the second quarter mainly reflected fallout from a bigger trade deficit. A surge in imported goods swamped growth in U.S. exports to other countries. The bigger trade gap that resulted shaved 3.5 percentage points from second quarter growth, the most since 1947. Another major factor in the economy’s slowdown: Businesses added to their stockpiles of goods at a slower pace in the spring, reflecting concerns about the spending appetites of their customers. The economy’s growth has to be much stronger than what the U.S. has been logging to lower unemployment. Under one rule of thumb, the economy would have to expand by at least 5 percent for an entire year to drive down the jobless rate by one percentage point. The Federal Reserve is weighing new action to bolster the economy. One likely step is to buy more government debt. Doing so would be aimed a lowering rates on mortgages, corporate loans and other debt. The Fed’s goal: get Americans to boost their spending, which would strengthen the economy. Thursday’s report also showed that prices – excluding food and energy – rose at a slower pace in the second quarter. They increased at a 1 percent annual rate. That was down from a 1.2 percent in the first quarter and was the slowest pace since the beginning of 2009. One of the things that Fed doesn’t want to see happen is for the weak economy to lead to a dangerous bout of deflation, a widespread drop in prices of goods and services, in wages, and in the value of homes, stocks and other assets. Meanwhile, the GDP report also showed that corporations’ after-tax profits rose at a slower pace in the spring. Less generous profits are likely to make businesses think twice about making big capital purchases or stepping up hiring. When the government reported in late August that the economy’s growth had slowed to just a 1.6 percent pace, it stoked fears the economy might fall back into a recession. Since then, those fears have receded a bit, with reports showing that sales at retailers and activity at factories are holding up. Nonetheless, with the economy so fragile, it is more vulnerable to being hurt by any negative forces. For each quarter, the government makes three estimates of GDP. It revises the figures based on more complete data. Thursday’s was the third and final estimate for the second quarter. The government makes it first estimate of the economy’s third-quarter performance at the end of October.

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Bill To Tax Firms That Export Jobs Fails In Senate

September 28, 2010

WASHINGTON — The Senate on Tuesday blocked tax legislation that would have punished U.S. firms that export jobs. But the political symbolism of trying to save American jobs, not passing a bill, was the Democrats’ closing argument on the economy in the waning weeks of the congressional elections. Republicans complained that the vote used a serious subject – economic recovery – to score points with voters five weeks before the balloting in which all 435 House seats, 37 Senate seats and the Democratic majority are on the line. The bill in question, Republicans said, would make U.S. companies less competitive. “The liberal Senate leadership has brought forward a politically motivated bill that will never become law,” said Sen. Orrin Hatch, R-Utah. But majority Democrats, now without their original plan to close the campaign with a middle class tax cut, sought to convince voters that the bill showed off their commitment to supporting the nation’s economic recovery. “This is part of the continuing focus on jobs,” Sen. Debbie Stabenow, D-Mich., told reporters. The bill failed, 53-45, to attract the 60 votes required to advance. Four Democrats and one Independent joined Republicans to block its progress. But debating it and forcing senators on the record was the Democrats’ point. “We’re just a few weeks away from an election,” said Sen. Dick Durbin, D-Ill. “I wish this election would be a simple referendum on the debate we’re having on the floor of the Senate right now.” The bill at issue in the Senate would exempt companies that import jobs from paying the 6.2 percent Social Security payroll tax for new U.S. employees who replace overseas workers who had been doing similar work. The two-year exemption would be available for workers hired over the next three years. The tax cut – estimated to cost about $1 billion – would be partially offset by tax increases on companies that move jobs overseas. The bill would prohibit firms from taking deductions for business expenses associated with expanding operations in other countries. It would increase taxes on U.S. companies that close domestic operations and expand foreign ones to import products to the U.S. Republicans argued the tax cuts would be difficult to administer and the tax increases would hurt international corporations that employ U.S. workers. “Let’s have votes on real job creation incentives and let’s get out of this gamesmanship,” said Sen. Chuck Grassley of Iowa, the top Republican on the tax-writing Senate Finance Committee. The tax increases total $369 million over the next decade, according to a preliminary estimate by the nonpartisan Joint Committee on Taxation. Combined with the tax cut, the bill would add an estimated $721 million to the budget deficit over the next decade. The Democrats voting to block the bill were Sens. Max Baucus of Montana, Ben Nelson of Nebraska, Jon Tester of Montana and Mark Warner of Virginia. Also voting no was Sen. Joe Lieberman, I-Conn.

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Elizabeth Warren Was Paid To Be An Expert Witness In Cases Against Bailed-Out Banks

September 28, 2010

While acting as a government-appointed bailout watchdog, Elizabeth Warren, whom President Obama appointed this month to lead the creation of the Consumer Financial Protection Bureau , served as an expert witness in cases against some of the big banks receiving aid from the Troubled Asset Relief Program, Bloomberg News reports. Warren was paid $90,000 to be an expert witness in a class-action lawsuit at the same time she was head of the Congressional Oversight Panel , which oversees the $700 billion government bailout of the financial sector. Bank of America, Citigroup and JPMorgan Chase, all of which received TARP assistance, were among the defendants in the suit, according to Bloomberg . Warren told Bloomberg that her work as a witness constituted no ethical violations, saying she had prior approval from the ethics lawyer for the Congressional Oversight Panel. A Harvard professor and an expert on the financial sector particularly as it relates to middle-class consumers, Warren said she was allowed to continue doing side jobs even as she held this government role. Warren is famously tough as advocate for the middle class, and a former student described her teaching style at Harvard as “Socratic with a machine gun.” As head of the panel overseeing TARP, she remained more skeptical than Treasury secretary Tim Geithner about whether the program had actually succeeded in ensuring that certain banks could function without government support. In appointing Warren to set up the CFPB, which she is credited with devising, the president effectively made her head of the agency, at least for now, and sidestepped what could have been a contentious confirmation hearing.

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Obama Names Elizabeth Warren To New Post Setting Up Consumer Protection Agency

September 17, 2010

WASHINGTON — President Barack Obama named Wall Street critic Elizabeth Warren a special adviser Friday and tasked her with setting up a new agency to look out for consumers in their dealings with banks, mortgage companies and other financial institutions. Calling Warren “one of the country’s fiercest advocates for the middle class,” Obama said she would ensure the Consumer Financial Protection Bureau ends abusive practices. “Never again will folks be confused or misled by pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans,” he said, standing alongside Warren and Treasury Secretary Timothy Geithner in the White House Rose Garden. Obama credited Warren with developing the concept of the new consumer agency, and he said, “It only makes sense that she should be the architect.” Obama did not nominate Warren to be the bureau’s director, however. Instead he is creating a role that allows her to avoid a lengthy confirmation fight with Senate Republicans who view her as too critical of Wall Street and big banks. The business and banking community opposed Warren as director, contending she would make the agency too aggressive. Warren designed the advisory role during long conversations with White House officials. The 61-year-old Harvard professor can assume her duties immediately, leading a team of Treasury officials already laying the groundwork for the bureau. Obama said Warren would eventually help him choose the agency’s chief. White House press secretary Robert Gibbs sidestepped questions about whether Warren herself would be in the running for the director’s post, saying only, “The president will nominate a director and Elizabeth will be instrumental in filling that position.” The financial regulation law creating the bureau gives the Treasury Department authority to run it while the nomination of its director is pending. The bureau won’t write rules restricting mortgages or credit cards until it assumes power from other agencies – a move planned for July 21, 2011, according to a memo Friday from Geithner. Until then, it will be hiring staff, creating the new offices and conducting research to inform later rule-making activities, the memo says. That means Warren may not get much say in the two bureau powers banks fear the most: onsite monitoring of the largest banks, and writing rules to restrict products deemed unfair or deceptive. Senate Banking Committee Chairman Chris Dodd, who had questioned whether Warren would have enough support to win confirmation, said Thursday the White House was within its rights to name her an adviser and expert. But he added on Bloomberg television, “We need a director. We’ve got to have someone who is confirmable. The law requires that there be a director of this bureau of consumer financial protection and that that nominee be confirmed by the Senate.” Asked whether Warren would effectively be serving in that capacity, Dodd replied: “You can’t do that. You’ll end up with too much opposition. … I’d be totally opposed to someone on a backdoor operation here.” Warren has spent the past two years running the Congressional Oversight Panel, charged with monitoring the Treasury Department’s handling of the $700 billion bank rescue fund known as the Troubled Asset Relief Program. She stepped down from the panel just after Friday’s announcement.

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Simon Johnson: Elizabeth Warren: The Right Appointment at the Right Time

September 16, 2010

The case for appointing Elizabeth Warren to set up the new Consumer Financial Protection Bureau (CFPB) was, at the end of the day, overwhelming. She had the original idea, she helped build political support and her own credentials have been only strengthened by her work as head of the Congressional Oversight Panel for TARP. On Friday, the president will reportedly appoint Professor Warren as an assistant to the president and special adviser to the Treasury Secretary, with the task of setting up and initially running the CFPB. Some of Ms. Warren’s supporters think this move is something of a half-measure — they would have preferred a conventional nomination, with all the fanfare of a classic confirmation battle in the Senate. There is something to be said for that, but the interim appointment route is by far the best way forward for three reasons. First, this form of appointment puts Elizabeth Warren to work right away — on the issues of consumer protection that are first order both for ordinary families and for the macroeconomy. You really cannot build a sustainable economic recovery on the back of exploitative or abusive behavior by the financial sector. These issues are urgent and need resolution as soon as possible. Second, the president finally has an adviser who understands the financial sector and who has healthy skepticism about its intentions and actions. As we documented at length in 13 Bankers, too many top policy people — both in this administration and all its recent predecessors — have been overly inclined to accommodate the interests of finance, particularly the big banks. In this regard, putting Ms. Warren directly into the White House with the highest possible level of access is exactly the right thing to do — much better, for example, than making her purely a Treasury appointment. Third, this step does not avoid a debate in the Senate — it merely postpones it to a more advantageous moment. Presuming that Ms. Warren is nominated for a five-year term as head of the CFPB, she would go before the Senate Banking Committee with a real track record of achievement as interim head. The debate would not be about what the agency could do, but rather what it has already done — and what it is set up to do next. These are exactly the right terms on which to bring out into the open all those who think that the financial sector only ever behaves well — or that enforcing sensible rules on lenders would somehow bring the economy to its knees. Barney Frank has the right overall assessment, telling the New York Times : “I congratulate the administration on its creativity. There’s no possibility she would take something like this unless she was fully empowered to do the job.” Cross-posted at The Baseline Scenario.

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Simon Johnson: Think Long-Term Fiscal Sustainability, Let Bush Tax Cuts Expire

September 8, 2010

According to the Congressional Budget Office, extending all the Bush tax cuts would add $2.3 trillion to the total 2018 debt. The single biggest step our government could take this year to address the structural deficit would be to let the tax cuts expire. Such a credible commitment to long-term fiscal sustainability should reduce interest rates today, helping to stimulate the economy.

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Jim Worth: The Taxing Debate Over Taxes

August 31, 2010

American’s perception of taxes is both perplexing and disturbing . Americans have difficulty grasping the effect taxes have on their lives. There are many reasons for their confusion. Taxes have become a political football with each side vehemently arguing their position in hopes of being reelected. The Bush Tax Cuts are set to expire at the end of this year and a decision must be made by Congress whether to extend them or let them sunset. If Congress does nothing taxes will return to the levels of 2002; the lowest being 15% and the highest moving back to 38.6, a 3.6% increase. It’s understandable, given the complexity of the current tax code and the political posturing that clouds the discourse of such a sensitive personal subject, that the average person doesn’t quite know which is best for them and the economy. What is the truth about taxes? Which are good and which are bad? This is the question we should be asking. Taxes are a very personal thing and, to put it quite frankly, everyone hates them; especially those taxes that touch them personally. There’s a widespread misconception about taxes — who they effect, their purpose, which ones will help and which will hurt the country, and their relationship to the economy. Mark Zandi, Chief Economist at Moody’s Economy.com addressed the issue in his New York Times Op-Ed, ” The Tax Cut We Can Afford ,” and presented a reasoned approach to the current tax dilemma. There is a fear by some, including Mr. Zandi, that increasing the marginal tax rate on the top two income brackets will dramatically slow the economy and possibly send us into the dreaded douple dip. But that fear may be unjustified if a double dip is imminent. Despite the possibility of a double dip, allowing those that caused this recession to slide another year is unacceptable. Phasing, as suggested by Mr. Zandi, is a great concept, one I’ve advocated for nearly 40 years. Phasing in taxes is a good idea, but it must begin immediately. Mr. Zandi would prefer to wait until 2012, but delaying the increase may also be destructive to an already sputtering economy and escalating deficit. The marginal tax rate on upper-income Americans is too low and has been for far too long. We have been at some of the lowest rates in our lifetime, and the Bush tax cuts have done little to stimulate the economy. They have only served to redistribute the wealth upward. Warren Buffet acknowledged the insanity of low upper tax rates on the wealthy when he declared something to the affect: “My chauffeur pays a higher tax rate than I do!” His reference to the ‘ effective tax rate ,’ the actual amount of tax that is paid after deductions, is much lower than the ‘ marginal tax rate .’ The average upper income family pays an ‘average rate’ of 18 to 20% after figuring their adjusted gross income. Raising the tax rate by 2% in 2011 would increase the actual taxes these individuals pay by about half a percent. Some feel raising the top two rates would slow consumer spending. Moody’s Chief Economist estimates that the group accounts for nearly a fourth of consumer spending. The question he, and other tax-extension advocates should be asking is — why? The answer should be obvious. Thirty years of redistribution of wealth has killed the middle-class — usurped their buying power — while elevating the elite to 1920′s excesses. Though they represent one quarter of consumer spending much of what the elite buy does little to help the economy of the other 98%; the ‘ real ‘ economy. The arguments on taxes are fraught with myths and lies. They distort the real issue confronting us: declining tax receipts and a rapidly rising deficit. Even the Tea Party, through their naivete, have muddied the ‘ real ‘ discussion we should be having over taxes. Republicans, still enamored by Ronald Reagan, conjure up the myth that his tax cuts created a thriving, robust economy. That’s a lie! And it’s repeated by all Republicans. Top Marginal Tax Rates during Reagan’s two terms were higher than the current rate for seven of his eight years in office. Even more devastating was his tripling of the national debt from $900 billion to nearly $2.67 trillion; an increase of 189%. His two band-aid terms forced George H.W. Bush to raise taxes during his administration to make up for Reagan’s economic insufficiencies. Bush raised the TMR to 31% from 28% and was vilified, losing reelection to Bill Clinton as a result. Clinton immediately raised it to 39.6% where it remained for 8 years and allowed President Clinton to leave George W. Bush a surplus which he promptly spent, then pushed the economy into untenable deficits. His tax cuts dramatically reduced the tax receipts collected each year which drove the national debt to $10.7 trillion; nearly doubling the $5.6 trillion when he came into office. It is easy to understand the confusion if talking points are all most voters get. This is evidenced by the deception of the estate tax. Frank Luntz’s suggestion to the Republicans to call it a ‘ death tax ‘ is unAmerican and should be an indictable offense. The Estate Tax has absolutely no affect on 97.5% of the people in this country, yet individuals making $100,000 a year are screaming about getting rid of the death tax. Sheep following a stupid idea. The confusion over the Capital Gains Tax and how it will hurt small business, delay someone from starting a business, or from hiring a needed employee is a diversion. So what is the right thing to do about taxes? As Mr. Zandi says, phase in the increases on the top two tax brackets. Start immediately: 35% Bracket — 2% in 2011, 1.5% in 2012, and 1% in 2013; 33% Bracket — 1.5% in 2011, 1% in 2012, and .5% in 2013. That would bring the rates to 2000 levels by 2013 and cause less pain. But we should consider something unique, something bold ! Let’s also lower the lowest three tax rates over the next three years. Current Tax Rate should be reduced to new lower levels by 2013: 10% Bracket : 9% in 2011, 8.5% in 2012, and 8.5% in 2013 15% Bracket : 14% in 2011, 13% in 2012, and 12.5% in 2013 25% Bracket : 23.5% in 2011, 22% in 2012, and 21% in 2013 This would put money in the hands of people that will spend all of it on necessities and other products that will stimulate the economy from the bottom up. Eight years of tax cuts have done nothing to help this dying economy. We’ve tried it at the top and it doesn’t work. It’s time to try it at the bottom and see if it works better. This has been a horrific recession and it is not yet over. We may have to feel more pain and level the playing field if we have any hope of recovering from this morass. Not only do people need to research taxes, but they must insist that their Congressional representatives fully explain their position rather than merely repeat talking points. The Internet has all the necessary tools to research taxes. If you want to be an American, get off your lazy asses and do some. With even a little research, the vote regarding the Estate Tax should be 95% to keep and raise it, and 5% to eliminate it. We need more than talking points to understand taxes. We need honest discussion. Our survival and the survival of this country depends on it!

Read the full article →

Jim Worth: The Taxing Debate Over Taxes

August 31, 2010

American’s perception of taxes is both perplexing and disturbing . Americans have difficulty grasping the effect taxes have on their lives. There are many reasons for their confusion. Taxes have become a political football with each side vehemently arguing their position in hopes of being reelected. The Bush Tax Cuts are set to expire at the end of this year and a decision must be made by Congress whether to extend them or let them sunset. If Congress does nothing taxes will return to the levels of 2002; the lowest being 15% and the highest moving back to 38.6, a 3.6% increase. It’s understandable, given the complexity of the current tax code and the political posturing that clouds the discourse of such a sensitive personal subject, that the average person doesn’t quite know which is best for them and the economy. What is the truth about taxes? Which are good and which are bad? This is the question we should be asking. Taxes are a very personal thing and, to put it quite frankly, everyone hates them; especially those taxes that touch them personally. There’s a widespread misconception about taxes — who they effect, their purpose, which ones will help and which will hurt the country, and their relationship to the economy. Mark Zandi, Chief Economist at Moody’s Economy.com addressed the issue in his New York Times Op-Ed, ” The Tax Cut We Can Afford ,” and presented a reasoned approach to the current tax dilemma. There is a fear by some, including Mr. Zandi, that increasing the marginal tax rate on the top two income brackets will dramatically slow the economy and possibly send us into the dreaded douple dip. But that fear may be unjustified if a double dip is imminent. Despite the possibility of a double dip, allowing those that caused this recession to slide another year is unacceptable. Phasing, as suggested by Mr. Zandi, is a great concept, one I’ve advocated for nearly 40 years. Phasing in taxes is a good idea, but it must begin immediately. Mr. Zandi would prefer to wait until 2012, but delaying the increase may also be destructive to an already sputtering economy and escalating deficit. The marginal tax rate on upper-income Americans is too low and has been for far too long. We have been at some of the lowest rates in our lifetime, and the Bush tax cuts have done little to stimulate the economy. They have only served to redistribute the wealth upward. Warren Buffet acknowledged the insanity of low upper tax rates on the wealthy when he declared something to the affect: “My chauffeur pays a higher tax rate than I do!” His reference to the ‘ effective tax rate ,’ the actual amount of tax that is paid after deductions, is much lower than the ‘ marginal tax rate .’ The average upper income family pays an ‘average rate’ of 18 to 20% after figuring their adjusted gross income. Raising the tax rate by 2% in 2011 would increase the actual taxes these individuals pay by about half a percent. Some feel raising the top two rates would slow consumer spending. Moody’s Chief Economist estimates that the group accounts for nearly a fourth of consumer spending. The question he, and other tax-extension advocates should be asking is — why? The answer should be obvious. Thirty years of redistribution of wealth has killed the middle-class — usurped their buying power — while elevating the elite to 1920′s excesses. Though they represent one quarter of consumer spending much of what the elite buy does little to help the economy of the other 98%; the ‘ real ‘ economy. The arguments on taxes are fraught with myths and lies. They distort the real issue confronting us: declining tax receipts and a rapidly rising deficit. Even the Tea Party, through their naivete, have muddied the ‘ real ‘ discussion we should be having over taxes. Republicans, still enamored by Ronald Reagan, conjure up the myth that his tax cuts created a thriving, robust economy. That’s a lie! And it’s repeated by all Republicans. Top Marginal Tax Rates during Reagan’s two terms were higher than the current rate for seven of his eight years in office. Even more devastating was his tripling of the national debt from $900 billion to nearly $2.67 trillion; an increase of 189%. His two band-aid terms forced George H.W. Bush to raise taxes during his administration to make up for Reagan’s economic insufficiencies. Bush raised the TMR to 31% from 28% and was vilified, losing reelection to Bill Clinton as a result. Clinton immediately raised it to 39.6% where it remained for 8 years and allowed President Clinton to leave George W. Bush a surplus which he promptly spent, then pushed the economy into untenable deficits. His tax cuts dramatically reduced the tax receipts collected each year which drove the national debt to $10.7 trillion; nearly doubling the $5.6 trillion when he came into office. It is easy to understand the confusion if talking points are all most voters get. This is evidenced by the deception of the estate tax. Frank Luntz’s suggestion to the Republicans to call it a ‘ death tax ‘ is unAmerican and should be an indictable offense. The Estate Tax has absolutely no affect on 97.5% of the people in this country, yet individuals making $100,000 a year are screaming about getting rid of the death tax. Sheep following a stupid idea. The confusion over the Capital Gains Tax and how it will hurt small business, delay someone from starting a business, or from hiring a needed employee is a diversion. So what is the right thing to do about taxes? As Mr. Zandi says, phase in the increases on the top two tax brackets. Start immediately: 35% Bracket — 2% in 2011, 1.5% in 2012, and 1% in 2013; 33% Bracket — 1.5% in 2011, 1% in 2012, and .5% in 2013. That would bring the rates to 2000 levels by 2013 and cause less pain. But we should consider something unique, something bold ! Let’s also lower the lowest three tax rates over the next three years. Current Tax Rate should be reduced to new lower levels by 2013: 10% Bracket : 9% in 2011, 8.5% in 2012, and 8.5% in 2013 15% Bracket : 14% in 2011, 13% in 2012, and 12.5% in 2013 25% Bracket : 23.5% in 2011, 22% in 2012, and 21% in 2013 This would put money in the hands of people that will spend all of it on necessities and other products that will stimulate the economy from the bottom up. Eight years of tax cuts have done nothing to help this dying economy. We’ve tried it at the top and it doesn’t work. It’s time to try it at the bottom and see if it works better. This has been a horrific recession and it is not yet over. We may have to feel more pain and level the playing field if we have any hope of recovering from this morass. Not only do people need to research taxes, but they must insist that their Congressional representatives fully explain their position rather than merely repeat talking points. The Internet has all the necessary tools to research taxes. If you want to be an American, get off your lazy asses and do some. With even a little research, the vote regarding the Estate Tax should be 95% to keep and raise it, and 5% to eliminate it. We need more than talking points to understand taxes. We need honest discussion. Our survival and the survival of this country depends on it!

Read the full article →

CBO: Stimulus Added Millions Of Jobs In Second Quarter

August 24, 2010

WASHINGTON (Reuters) – The massive U.S. stimulus package put millions of people to work and boosted national output by hundreds of billions of dollars in the second quarter, the nonpartisan Congressional Budget Office said on Tuesday. CBO’s latest estimate indicates that the stimulus effort, which remains a political hot potato ahead of the November congressional elections, may have prevented the sluggish U.S. economy from contracting between April and June.

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Stimulus Boosted U.S. GDP By Up To 4.5% In 2Q, Added Up To 3.3 Million Jobs: CBO

August 24, 2010

WASHINGTON (Reuters) — The massive stimulus package boosted real GDP by up to 4.5 percent in the second quarter of 2010 and put up to 3.3 million people to work, the nonpartisan Congressional Budget Office said on Tuesday. CBO’s latest estimate indicates that the stimulus effort, which remains a political hot potato ahead of the November congressional elections, may have prevented the sluggish U.S. economy from contracting between April and June.

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Stimulus Boosted U.S. GDP By Up To 4.5% In 2Q, Added Up To 3.3 Million Jobs: CBO

August 24, 2010

WASHINGTON (Reuters) — The massive stimulus package boosted real GDP by up to 4.5 percent in the second quarter of 2010 and put up to 3.3 million people to work, the nonpartisan Congressional Budget Office said on Tuesday. CBO’s latest estimate indicates that the stimulus effort, which remains a political hot potato ahead of the November congressional elections, may have prevented the sluggish U.S. economy from contracting between April and June.

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The Norris Group Real Estate News Roundup 8/23/10 | The Norris …

August 23, 2010

“The Congressional Budget Office (CBO) projected Friday the total cost of Troubled Asset Relief Program (TARP) over its lifetime would be $66bn. This is down from the $109bn lifetime cost projected in March. Outlays for Fannie Mae and Freddie … Defeasance activity is when a borrower in a commercial real estate securitization substitutes some type of capital-generating collateral – often Treasury securities – in lieu of a hard payment.” Bloomberg – “Bernanke Must Raise …

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Paul Krugman: Bush Tax Cut Debate Is Proof Of Our ‘Dysfunctional And Corrupt Political Culture’

August 23, 2010

What’s at stake here? According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments.

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Bush Tax Cuts: Less Than One-Third Support Extending Reduced Rates (POLL)

August 20, 2010

Fewer than one in three Americans favor extending tax cuts enacted into law by former President George W. Bush when they expire at the end of this year, according to a CNN/Opinion Research poll released Friday. The survey finds that 31 percent say they support allowing the cuts to continue for all taxpayers, regardless of income level. By contrast, the poll finds 51 percent believe the reduced rates should be kept in place for families earning less than $250,000 each year, but not for households bringing in more than that cash amount. Whether or not the tax cuts approved by Bush should be extended for the wealthy has emerged as a hot topic for debate among lawmakers and candidates running for office in the midterm election cycle. The Obama administration, as well as many Democrats, have signaled an intent to leave the decreased rates in place, with the exception of for taxpayers earning an annual income that exceeds $250,000. “There are many good reasons not to extend the high-end parts of the Bush tax cuts having to do with the fear that a temporary extension could be made permanent,” explained chief economist to Vice President Joe Biden, Jared Bernstein, to the Huffington Post earlier this week. “What you are talking about — a $30 to 40 billion range in terms of adding to the deficit by extending the high end — could easily become $700 billion over a ten-year budget window.” Meanwhile, Republicans on a large scale have argued for an extension of the tax cuts based on the justification that the lower rates would better enable economic growth and job creation. The nonpartisan Congressional Budget Office forecasted on Thursday that allowing the reduced rates to remain in place could give the economy a sizable jolt in the short term; however, by extending the measure in full for all Americans, the federal deficit could increase to the point that the debt accounts for 8% of GDP by 2020.

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Video: Holtz-Eakin Previews CBO Report on U.S. Budget Deficit: Video

August 19, 2010

Aug. 19 (Bloomberg) — Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, talks about the outlook for the CBO’s update today on the U.S. budget deficit. Holtz-Eakin spoke yesterday with Bloomberg’s Peter Cook. (Source: Bloomberg)

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Elizabeth Warren Hailed As ‘The New Sheriff’ In Music Video (VIDEO)

August 13, 2010

Elizabeth Warren, chair of the Congressional Oversight Panel and professor of law at Harvard University, is getting some eye-catching support in a progressive push for the bailout watchdog to lead a new consumer financial protection agency. In a new western-themed music video from Main Street Brigade, Warren is hailed as “the new sheriff.” The spot highlights her deep credentials and makes the case for why she should be the Obama administration’s pick to head the recently-established CFPA. A Time Magazine cover story published in May lauded Warren as one of “the new sheriffs of Wall Street.” Warren was the first to envision creating a bureau specifically aimed at protecting consumers from predatory lending practices. Her candidacy to lead the new body has been endorsed by Americans for Financial Reform, a coalition of 250 organizations long campaigning for legislation aimed at bringing new rules for the financial system. According to AFR, she “has shown a steadfast and tireless commitment to protecting consumers throughout her distinguished career and is without question the best candidate.” WATCH:

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Illinois Town Backs Out Of FutureGen: Mattoon Says Changes In ‘Clean’ Coal Plant A Deal Breaker

August 11, 2010

CHAMPAIGN, Ill. — An eastern Illinois town backed out of what was once a flagship energy project Wednesday after more than two years of political and financial ups and downs that saw the plans killed, revived and then radically altered. Officials in Mattoon told U.S. Sen. Dick Durbin in a letter that changes made to the $1.2 billion FutureGen project were a deal breaker. Durbin and the Department of Energy surprised the town last week with changes that included retrofitting an existing power plant in western Illinois, instead of building a new experimental plant in Mattoon, and piping the plant’s carbon dioxide to Mattoon for underground storage. Durbin, a longtime backer of the project, said FutureGen’s financiers in the Energy Department would quickly search for a new storage site. In the letter, local economic developer Angela Griffin wrote that most local officials and business leaders she consulted felt that Mattoon had signed on to become the heart of a project that could revolutionize energy production, and were disappointed with its new, more limited role as primarily a carbon dioxide storehouse. “If FutureGen 2.0 moves ahead with the revised structure … it must be without Coles County,” wrote Griffin, who leads the local Coles Together economic development group. Durbin said in a statement that he was disappointed but would ask the Energy Department to solicit proposals from other interested towns. Durbin spokesman Joe Shoemaker said nine or 10 towns have contacted Durbin’s office to express interest, though he declined to name them, and the department still plans to provide $1.1 billion in stimulus funds to the chosen site. The new site would have to be picked by early September in order to be reviewed by the Congressional Office of Management and Budget before the Sept. 30 deadline for any project counting on stimulus money. Shoemaker said he was confident of quick reviews. Assistant Energy Secretary James J. Markowsky said the geology of the local Mount Simon formation means much of central and east-central Illinois is suitable for storing carbon dioxide. “Mattoon was to be the host for this site, but many communities downstate have access to the same geology,” he said. A spokesman for the FutureGen Alliance, the coal companies and other private sector partners that have worked with the Energy Department on the project declined comment. Until last week, the FutureGen project called for a power plant to be built in Mattoon with carbon dioxide from its coal stored underground. The goal was to prove that coal could be burned to make electricity while the carbon dioxide that makes coal a pollution problem could be captured and safely stored. That version of the project promised 1,300 construction jobs and 150 high-skilled positions. The new plan would retrofit a plant in Meredosia in west-central Illinois and try a different kind of technology. Mattoon would have stored carbon dioxide piped from that plant and become home to a training center for people to learn how to do retrofitting work. The carbon storage facility would have brought 75 jobs, though no job estimates were provided for the center. Mattoon was chosen in December 2007, over nearby Tuscola and two sites in Texas. Since then, the eastern Illinois town of 18,000 watched as President George W. Bush’s administration pulled support over cost concerns that a federal auditor later said were based on faulty data, and then saw the project revived when President Barack Obama, who’s from Illinois, took office. Tuscola, about 25 miles north of Mattoon, might be interested but needs more information about the revised project, local economic developer Brian Moody said. “We’re obviously very skeptical just as to whether or not the commitment is there to get this project to happen,” he said. Rep. Tim Johnson, a Republican from Urbana whose district includes Mattoon, doubts FutureGen will be built. He said he would help Tuscola or other towns pursue the project but advised them to think hard before committing. “They’ve got to be very careful with anything that comes from the mouths of people at the Department of Energy,” he said.

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Elizabeth Warren Backed By Coalition Of Academics To Head New Consumer Agency

August 3, 2010

A coalition of professors across the country has emailed President Barack Obama in support of Elizabeth Warren as head of the nascent Bureau of Consumer Financial Protection. The 141 professors, representing disciplines from law, economics, management, sociology, and political science, sent the email this morning praising Warren’s “scholarly expertise” and effective management. The list includes Warren’s former employers at Harvard University, University of Texas, University of Houston and University of Michigan, as well as her alma mater, Rutgers Law School. As pressure mounts for the White House to choose the first leader of the consumer oversight panel, the academics join a growing chorus of Congressmen and reformers pushing Warren. In addition, 26 prominent economists and experts sent a similar letter to Obama , urging him to name Warren. As reported by HuffPost , Treasury Secretary Timothy Geithner has expressed his opposition to her nomination though he’s praised her in public. This morning, he told “Good Morning America” that he thought she would be “a very effective, very capable leader” — but stopped short of endorsing her. Opposed to her nomination are some prominent Democrats, including the bill’s author Chris Dodd, leading Senate Banking Committee Republicans Richard Shelby and Bob Corker and financial industry trade groups. In their email, Warren’s academic colleagues write: “Professor Warren’s integrity and genuine concern for the plight of ordinary American families are sorely needed in Washington. We believe that Elizabeth Warren is the ideal choice to head the Bureau of Consumer Financial Protection.” READ the letter: Dear Mr. President, We are professors of many disciplines, including law, economics, management, sociology, and political science, who specialize in subjects relevant to the Bureau of Consumer Financial Protection (the “Bureau”) established by the Dodd-Frank Act. We write to urge you to appoint Elizabeth Warren as the Bureau’s first Director. Professor Warren is an eminent legal scholar and a nationally renowned expert on consumer finance. She has authored over one hundred and twenty scholarly articles and books. These include a best-selling personal finance book for middle class families and teaching materials that help educate thousands of law students every year. This scholarly expertise, along with her work as Chair of the Congressional Oversight Panel for TARP, has given Professor Warren a broad, and perhaps unique, perspective on how effective consumer protection is essential for the safety and soundness of the financial system and the health of the American economy. She is an effective manager with clear vision and the ability to coordinate complex projects, as demonstrated by her groundbreaking scholarly studies, her work as reporter for the National Bankruptcy Review Commission, and her leadership of the Congressional Oversight Panel. In both her scholarship and her public service, Professor Warren draws her conclusions from careful analysis of data. She listens carefully to alternate hypotheses and she is responsive to criticism. She speaks plainly and honestly. She owes no allegiance to the financial services industry or other special interest groups. Professor Warren’s integrity and genuine concern for the plight of ordinary American families are sorely needed in Washington. We believe that Elizabeth Warren is the ideal choice to head the Bureau of Consumer Financial Protection.

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David Coates: The Foreclosure Crisis That Will Not Go Away

August 2, 2010

When the financial crisis broke in September 2008, it was widely understood — both in policy-making circles and in popular conversation — that problems in the U.S. housing market were central to the unfolding events. But thereafter, the events themselves took center stage: and the problems of the housing sector, though not forgotten, slipped down the political agenda and off the popular radar. That was a mistake. Problems in the U.S. housing market remain central to our continuing difficulties — problems experienced by people wanting to buy houses, and problems experienced by people who already own one. Economically and politically, a resolution of the U.S. housing crisis remains a key requirement for long term prosperity and, more immediately, for the continuation of a Democratic White House. Economically the current recovery is slow in part because the housing sector remains sluggish. The housing sector remains sluggish because the inventory of unsold houses remains high; and the inventory of unsold houses remains high because the foreclosure crisis refuses to go away. Politically , Obama and the Democrats are losing popular support because unemployment and job insecurity are rife. Unemployment and job insecurity are rife because the economy remains sluggish; and the economy remains sluggish in part because there are still so many foreclosed homes on the market. People are losing their homes in record numbers in contemporary America, and they are doing so now on Obama’s watch, not on Bush’s. It is true that part of the current foreclosure crisis was inherited by the Obama administration. It is also true that part of it was not. The Obama administration inherited a foreclosure crisis rooted in the large-scale growth of what were ultimately voluntarily adopted sub-prime mortgages. It now presides over a foreclosure crisis rooted in the large-scale growth of in voluntary unemployment in which sub-prime lending plays an ever diminishing part. Indeed the housing sector remains sluggish these days precisely because sub-prime lending has been broadly eradicated – it is now significantly more difficult than it was in 2005 and 2006 to obtain a mortgage – while the general recession that sub-prime lending helped to trigger still eats away at the ability of existing home owners to pay their mortgages, sub-prime or not. The first foreclosure crisis may well have triggered the second, but even so the two crises are not the same, and they do not deserve the same policy response. Policy designed by the incoming administration to deal with a foreclosure crisis triggered by sub-prime mortgages is not equal to the task of dealing with a foreclosure crisis triggered by large-scale involuntary unemployment. Moral hazard issues kept the original Obama housing policy (HAMP) policy modest. It kept it modest because the incoming administration had no desire to reward fecklessness and (by implication) penalize responsibility. But people are losing their homes now, not because of their fecklessness but because of the economy’s weakness. Many of those losing their houses in 2010 are innocent victims of a recession which they did not cause. There is no moral hazard issue in their case. They have done nothing wrong; and because they have not, it is time for a housing policy that is addressed to their needs and to their needs primarily. It is time for housing policy to move on. Twice now, the Congressional Oversight Panel chaired by Elizabeth Warren has made clear the inadequacy of policy to date. In October 2009, it was Warren’s view that “even when Treasury programs are running at full speed, foreclosures are estimated to outpace modifications by about two to one.” Seven months later, the view was the same: “Treasury’s response continues to lag well behind the pace of the crisis…its programs still are not keeping pace with the foreclosure crisis.” Just 168,708 people helped in the first 12 months of the program, as Elizabeth Warren put it, when the rate of monthly foreclosures was nearer to 200,000! Why? For Elizabeth Warren at least, because the administration’s plans seem ‘targeted at the housing crisis as it existed six months ago, rather than as it exists now.” It is not that the Obama administration has been totally inactive or totally ineffective in its housing policy. On the contrary: on the demand side for housing — on the plight of people wanting to acquire a mortgage — the administration’s record is clear and broadly positive. As the Congressional Oversight Panel have it: It is likely that government intervention in the housing market, such as the homebuyers tax credits, support for Fannie Mae and Freddie Mac, a large increase in FHA insurance underwriting, and Treasury and Federal Reserve purchases of mortgage-backed securities, as well as Federal Reserve policy aimed at keeping interest rates low, have fostered increased demand for home purchases by making them more affordable and by reducing the cost of mortgage finance. But what is also clear is that “some of those government interventions in the housing market are being scaled back or eliminated” at the very time when the assistance afforded under HAMP to people who already have a mortgage but can no longer afford to maintain it is proving to be fundamentally inadequate to the task faced. Under the existing HAMP, what you get is temporary help with your payments. What you don’t get is help with reducing the amount you have borrowed. The help you get is also only temporary – even the “permanent” modification lasts only 5 years — and still leaves you servicing large quantities of debt: “the typical post-modification borrower still pays about 59 percent of his total income on debt service” according to the Congressional Oversight Panel — even more, as we just saw, according to the Treasury. Moreover, if you were underwater when you applied for the temporary help — if the current value of your house had fallen to less than the size of your mortgage — then any help you get under HAMP will still leave you underwater. Currently one American household in four is underwater. In Nevada, it is almost three houses in four! The intention behind HAMP was laudable. Its design and implementation has been less so: as Elizabeth Warren put it to Judy Woodruff, “it’s as if we had a boat that’s taking on gallons of water, and they’re trying to bail it with a teaspoon.” The present housing situation is intolerable. It is morally intolerable. It is economically intolerable, and it is electorally intolerable. Innocent people are getting hurt. Economic recovery is being retarded. Support for progressive politics is being lost. Which raises the question: why is this being allowed to happen? Is anyone in the White House awake on this issue? Tim Geithner and Larry Summers may not get it, but somebody needs to. If only to ensure that the Democrats hold on to that particular house for more than one presidential term, somebody working in the White House needs to design a program that will actually help, and needs to design that program in a hurry. The Democratic Party likes to present itself as the champion of the dispossessed. There cannot be a much more serious form of dispossession in modern American than the dispossession of your house. Can someone please tell the administration that it is time to keep all Americans in their homes, including Barack and Michele Obama in their temporary one. Because if policy does not change quickly and in the right direction, the first family may be back in the private housing market far sooner than either they or their supporters think desirable — and that would be an appalling waste!

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Corporate Campaign Fundraising Picks Up Speed

August 1, 2010

Driven by increasing anger at Democratic policies and by recent Supreme Court decisions unshackling corporate contributions, business and conservative groups are preparing a flood of campaign money to try to wrest control of Congress from the Democrats. The U.S. Chamber of Commerce, the biggest collection point for corporate contributions, has increased its spending for the congressional election in November from $35 million in 2008 to a projected $75 million this year. Officials say it may go even higher.

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Corporate Campaign Fundraising Picks Up Speed

August 1, 2010

Driven by increasing anger at Democratic policies and by recent Supreme Court decisions unshackling corporate contributions, business and conservative groups are preparing a flood of campaign money to try to wrest control of Congress from the Democrats. The U.S. Chamber of Commerce, the biggest collection point for corporate contributions, has increased its spending for the congressional election in November from $35 million in 2008 to a projected $75 million this year. Officials say it may go even higher.

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Zach Carter: There Are Zero Good Reasons To Block Elizabeth Warren

July 27, 2010

No reformers question whether Elizabeth Warren is the best candidate to head the new Consumer Financial Protection Bureau. She’s a lauded scholar, an inspiring advocate who will draw talented and dedicated reformers to the new agency and she came up with the whole idea for creating the CFPB in the first place. Nominating a dedicated reformer like Warren will send a clear signal to the entire world that the U.S. government is serious about regulating the banks that drove the global economy off a cliff. Nominating anybody else will send a clear signal that bankers still have veto power over key political appointments. By contrast, there are no compelling arguments against appointing Warren. Four have basically been offered, and they are all so weak that it’s hard to view them as anything but bad-faith excuses to block somebody the bank lobby simply doesn’t like. There’s a perfectly rational reason for the bank lobby not to like Elizabeth Warren: she’s spent much of her career explaining how elite bankers rip off American families, and there is every reason to believe she will crack down on this behavior if she’s given the CFPB post. That’s not a knock against Warren–that’s what the CFPB director is supposed to do . Here are the lousy objections that bankers and their apologists are voicing: Bogus Talking Point #1: Elizabeth Warren is insufficiently attuned to the benefits of financial innovation. There is simply no evidence for this claim whatsoever . Her career has been devoted to empowering the American middle class. She wants to see financial innovations, she just wants them to be good for the middle class, rather than tricks and traps designed to extract its wealth and convert it into bonuses. This is part of Warren’s political appeal. Not only is she right about policy, but her policies resonate with American families left, right and center. Find me a politician who is willing to publicly advocate for tricks, traps and big bonuses, and I’ll show you a politician who can’t get re-elected. Bogus Talking Point #2: Elizabeth Warren lacks the management experience needed to run a federal agency. This is not important, nor is it a typical standard for agency heads. As Tim Duncan of the Cambridge Winter Center for Financial Institutions Policy emphasized with me in conversation, there were plenty of Bush-appointed regulators who would have been rejected if “management experience” were a prerequisite for regulatory chiefs. When John Dugan was named Comptroller of the Currency in 2005, he had no management experience– he was a bank lobbyist and had been for more than a decade . “Management experience” is banking industry code for “one of us.” Bankers and their congressional backers weren’t worried about Dugan’s lack of management experience, because they knew he was an industry activist who could be relied on to promote whatever banks believed to be in their own short-term self-interest , regardless of the consequences for society at large . Just as important, agency heads are not HR reps or administrative officers, and there are plenty of qualified people who can help Warren flesh out the new agency. Those people are going to be hired by whoever ultimately ends up heading the CFPB, and pretending that Warren will be getting things up and running all by herself is more than a little bizarre. What she can do is set the tone for the new agency, and develop a culture of regulatory rigor. She’s already proven that she is capable of this–her work as Chair of the Congressional Oversight Panel for the Troubled Asset Relief Program has already changed the way Washington talks about banking and bailouts. Nobody else under consideration for the job can put that on their resume. Bogus Talking Point #3: Elizabeth Warren is not ‘confirmable’ Senate Banking Committee Chairman Chris Dodd, D-Conn., made himself look very silly by suggesting this last week on the Diane Rehm show. It’s not Dodd’s job to handicap nominations, it’s his job to get them through Congress. Sabotaging an appointment before it gets started by calling it politically impossible was a rather transparent favor for the banking industry. And today’s story by Noam Schieber in The New Republic underscores that Dodd was either recklessly shooting from the hip with that comment, or simply making things up. No Democrat is eager to buck President Barack Obama’s appointment to this agency, whoever it may be, and lawmakers from both parties are hesitant to speak out against Warren. She’s not a voice of progressives or Democrats, she’s a voice for working families. Behind the scenes, bank-friendly politicians are certainly trying to keep Warren from coming up for a vote. But when it comes time to actually vote, they aren’t going to vote against her. Bogus Talking Point #4: Elizabeth Warren is a shoddy scholar Only one person has launched this assault, because it’s so transparently false. Warren is one of the world’s foremost authorities on consumer bankruptcy law, and the authority on medical bankruptcies. Her work, in fact, created an entire realm of academic research on how and why medical bills push families over the edge. But that didn’t stop Megan McArdle from launching a sleazy, disingenuous smear campaign against Warren. Both Mike Konczal and Richard Eskow have taken down McArdle, and I don’t have much to add. McArdle gets her facts wrong, deploys specious reasoning, and published a public embarrassment for The Atlantic . The political case for appointing Warren is even stronger than the policy case. No voter will give Obama props for bending to the bankers on this appointment. Choosing anybody other than Warren will not make Obama appear reasonable or moderate–it will make him look weak and corruptible. Warren is the natural choice to head the CFPB, which is why every Wall Street reform group has lined up behind her, and every bank lobbyist has lined up against her. Voters are eager to see a president who stands with them on the economic issues that shape their lives. Appointing Elizabeth Warren head of the CFBP is the strongest signal Obama can send demonstrating that he’s working for the middle class.

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Gibbs: Elizabeth Warren Is A ‘Terrific Candidate’

July 26, 2010

Elizabeth Warren is a “terrific candidate” to lead the newly created Consumer Financial Protection Bureau and is “very confirmable” for the job, White House spokesman Robert Gibbs told reporters Monday. Progressive advocates, labor unions, House members and more than 100,000 petition-signers have been pressing the White House to name Warren to lead the bureau. Banking Committee Chairman Chris Dodd (D-Conn.) recently speculated that she may not be able to get the 60 votes needed to overcome a filibuster of her nomination; Gibbs’ statement appears to be a direct rebuke of that skepticism. “I would say Elizabeth Warren is a terrific candidate. I don’t think any criticism in any way by anybody would disqualify her. I think she’s very confirmable for this job,” Gibbs said, echoing a deputy spokesperson who also expressed the White House belief that she could win confirmation. Establishing that Warren is confirmable is a crucial step toward her nomination. Support continues to build for Warren, the intellectual godmother of the bureau, in the Senate. On Saturday, Sens. Al Franken (D-Minn.) and Jeff Merkley (D-Ore.) expressed support for her. Add Tom Udall to that list. On Friday, the Democratic senator from New Mexico sent a letter to the White House backing Warren, a copy of which was provided to HuffPost on Monday. Republicans have objected that Warren has an “agenda” — in the words of Sen. Richard Shelby (R-Ala.) — and Wall Street lobbyists strongly oppose her. Udall urged the president not to back down in the face of such opposition. “While some may argue that her passion will lead to overzealous regulation, Dr. Warren’s work on the Congressional Oversight Panel has been evenhanded,” Udall said in his letter. “Should you decide to nominate her to lead the Bureau, it will be a clear sign that the Bureau will be a champion for the American consumer, will stand up to unscrupulous actors and will not shrink from… fulfilling its mission under pressure.”

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AIG Failure Would Have Meant Big Losses For Goldman Sachs, Documents Show

July 24, 2010

Since the United States government stepped in to rescue the American International Group in the fall of 2008, Goldman Sachs has maintained that it would have faced few if any losses had the insurer failed. Though it was the insurer’s biggest trading partner, Goldman contended that it had bought credit insurance from financial institutions that would have protected it, but it declined to identify the institutions. A Congressional document released late Friday lists those institutions and shows that Goldman was exposed to losses in an A.I.G. default because some of the investment bank’s trading partners, such as Citibank and Lehman Brothers, were financially unstable and might have been unable to make good on large claims from Goldman.

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Elizabeth Warren Backed By Consumer Protection Advocates, Editorial Cartoons (PICTURES)

July 23, 2010

Elizabeth Warren faces significant obstacles if she wants to lead the Consumer Financial Protection Bureau, but some consumer advocates think she’s got them covered. Via the consumer-advocacy group Main Street Brigade come editorial cartoons depicting Warren as a strict referee and fearless sheriff, respectively. While the White House seems afraid to support the Harvard professor and Congressional Oversight Panel chair, cartoonists Erick Tran and Sergio Sole have no such compunction. Take a look:

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Joe Minarik: The Trust Fund and the Baby Boom

July 23, 2010

Recently, I suggested a legislative deal in which repair of Social Security’s finances would motivate Congress to enact economic stimulus. Surprisingly to me, given the fragile state of the economy, there was little reaction to the need for stimulus — and part of what reaction there was, was skeptical. Most of the reaction was negative toward repairing Social Security. The number of arguments raised would fill a book, and many will be worth discussing later. But one kept recurring: The Social Security trust fund was built up by the 1983 law to finance the retirement of the baby-boom generation. That trust fund can be redeemed to pay benefits through 2037. There is a lot of misunderstanding of both Social Security’s history and economics here. Let’s review both. Was the Social Security trust fund beefed up to pay for the retirement of the baby boom? Well, no. Here are the words of Robert J. Myers, who was the Executive Director of the National Commission on Social Security Reform (the “Greenspan Commission”): This false premise is that in 1983, the financing provisions were developed to build up a mammoth fund to take care of the baby boomers. This is not so at all. Rather, the major effort in 1983 was to solve the short-run problem by using pessimistic assumptions for the financing provisions. Then to solve the long-range problem, on the average — and I emphasize on the average — you might ask why didn’t Congress and the National Commission do a more thorough job in 1983? Well, the situation was that the ship was about to hit the iceberg. At that time, you worried about dodging the iceberg not how to redecorate the dining salon, namely, long-range funding procedure. I would challenge anybody to find anything in the Report of the National Commission on Social Security Reform that said the intention of developing the financing of the program was to build up a mammoth fund to take care of the baby boomers. Nor will you find any of this in any of the Congressional discussions, the debates, the Committee reports. All the fabric has been made up subsequently. [Language inaccuracies are in the official transcript ). In terms of the ship-and-iceberg metaphor, the Social Security Amendments of 1983 were enacted on April 20, and the previous year’s estimate was that Social Security could not write benefit checks in July. So given the uncertainties and delays inherent in the legislative process, it is no surprise that the Commission and the Congress were rushed. So the Greenspan Commission did not intend to build up a large trust fund that could be used to finance the retirement of the baby boom, nor did it design its proposals to do that. Still, could they work to achieve that result? Well, again, the answer is no — unfortunately. As noted perhaps too briefly in my original post, the problem with the federal budget is that we need to borrow far too much money for the health and safety of our economy. Anything that increases the amount of money that we need to borrow makes that problem worse. This year, and again in 2016 and thereafter, Social Security will need to redeem its Treasury securities to pay benefits. The Treasury has no cash because of the massive budget deficit, and so to raise the cash for Social Security, it must borrow. This means more total borrowing, which threatens the economy. (This problem obviously would not apply if we had a surplus, or only a small deficit.) Does Social Security have the legal right to that cash? Absolutely. But will it have adverse consequences for the economy? Sadly, that too. That is why, once they had the chance to digest the unexpected trust-fund implications of the 1983 law, economists quickly concluded that the trust fund accumulation could not be drawn down in large amounts to maintain the program after its revenues started falling short of the program’s benefits – which they are doing right now. For part of the time when I was working in the executive branch, the head of my office was a very bright non-economist who was charged for a time to work on Social Security. Like most normal people (that is, non-economists), he believed that Social Security could draw down its trust fund in any large amount. When I told him why economists had concluded to the contrary, he at first did not believe me. The next day, he came to me and told me that having thought more about it, I was clearly right. Not long thereafter, he had a private meeting with one of the lead members of the Greenspan Commission. I suggested to my boss that he ask the commissioner what he thought about this question now, and what the Commission had thought at the time. This member of the Greenspan Commission also had subsequently concluded that Social Security could not make an unlimited draw on the trust fund. As to what the Commission thought at the time? “You know, we never thought about it.” (So it turns out that Robert J. Myers was right about that.) There were many more questions and arguments. Can we exempt current and near-term retirees from any change and still make Social Security’s financing sound? (Yes.) Can we protect low-wage workers? (Yes.) Can we raise the ceiling on the payroll tax to finance Social Security? (Yes, but it won’t be enough.) Should we cut defense to reduce the deficit? (We will have to cut everything .) More on all of those questions later. But can we, or should we, run the Social Security trust fund into the ground? Unfortunately, no.

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Dems Demand That Salazar Stop Dragging His Heels And Investigate BP Whistleblower Allegations

July 23, 2010

Interior Secretary Ken Salazar still has yet to conduct a formal interview with Ken Abbott, a whistleblower from BP’s Atlantis rig where operators are allegedly missing engineering documentation essential to averting another oil rig disaster. This week, House Rules Committee Chair Louise Slaughter (D-N.Y.) and 17 other members of Congress asked Salazar to sit down and talk to Abbott. “A long, thorough investigation is certainly called for,” wrote Slaughter and her colleagues, “but in the meantime… immediate steps are absolutely necessary in order to assure that the Atlantis does not turn into an even larger disaster than the Deepwater Horizon.” Abbott first brought his safety concerns before the Minerals Management Service last year, and this past June he testified before the House Subcommittee on Energy and Minerals. Lawmakers expressed dismay this week that Interior has not even attempted to confirm Abbott’s allegations, instead letting the Atlantis continue operating only 190 miles south of New Orleans. “If there is even a small chance that the Atlantis is a ‘ticking time bomb’ as some have called it, the pace at which the Department has worked to resolve the questions raised about the Atlantis’ safety is worrisome,” the congressional letter reads. Though the Minerals Management Service — now renamed the Bureau of Ocean Energy Management, Regulation and Enforcement — had vowed to investigate Abbott’s claims and report their findings in May, Salazar said last month that the probe had only just begun. “Given the quantity of records and need for MMS to focus on responding to the Deepwater Horizon accident, the investigation is only approximately 10 percent complete,” he said .

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Video: Shelby Discusses Warren, Consumer Protection Agency: Video

July 21, 2010

July 21 (Bloomberg) — U.S. Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, talks with Bloomberg’s Peter Cook about Elizabeth Warren, who leads the congressional panel overseeing the Troubled Asset Relief Program, as a potential head of the new Consumer Financial Protection Bureau. (This is an excerpt of the full interview. Source: Bloomberg)

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Chuck Collins: The Business Case Against Overseas Tax Havens

July 20, 2010

Kate’s Cafe and AAA Appliance probably pay a higher percentage of their income in taxes than profitable Fortune 500 companies. In the U.S., thanks in part to overseas tax havens, we have one tax system for multinational companies and wealthy individuals — and another for small businesses and ordinary taxpayers. Tax havens enable the rich and U.S. multinationals to move income and assets between global subsidiaries and dodge taxes. Responsible businesses and individual taxpayers are left to pay for U.S. infrastructure, defense, education and all the public investments that contribute to a healthy business climate and economy. How does this work? A U.S. company creates a subsidiary in a secretive low tax haven such as Luxemburg, Bermuda or the Republic of Mauritius. In the Grand Cayman Islands, one building called Ugland House, houses over 19,000 of these corporate subsidiaries. These corporations moving assets and income between these subsidiaries so that profits appear to be generated overseas while losses are deducted from U.S. taxes. Because of the lack of transparency it is difficult to assess just how much money is loss, but estimates range from $43 billion to $123 billion per year for both individual and corporate tax avoidance. A new campaign, Business and Investors Against Tax Haven Abuse , signals an interesting convergence of domestic manufacturers, community banks, and small businesses that are fed up with how porous the global corporate tax code has become. They launched a petition drive on July 20th with 400 initial business signers. “Small businesses are the lifeblood of local economies,” said Frank Knapp, President and CEO of the South Carolina Small Business Chamber of Commerce and one of the lead signers. “We pay our fair share of taxes, shop locally, support our schools and actually generate most of the new jobs. So why do we have to subsidize multinationals that use offshore tax havens to avoid paying taxes?” Senator Carl Levin (D-MI), a long-time champion of closing tax havens, stated that the “campaign represents the first time in recent years that business people who believe tax havens are bad for business are mobilizing publicly to end the abuse.” The campaign estimates that corporations using tax havens avoid over $37 billion in taxes (a number that does not include wealthy individuals). These funds, they argue, could be better used for public infrastructure and support to small businesses which generate over 65 percent of new jobs. It could pay for initiatives like the recently introduced Small Business Jobs Act and the seed capital for a $30 billion Small Business Lending Program through community banks. In the coalition’s first report, Unfair Advantage: The Business Case Against Tax Havens they argue that overseas tax havens foster an unlevel playing field where small and domestic U.S. businesses that pay taxes are forced to compete against tax dodgers. For example, Wainwright Bank, a socially responsible local lender based in Boston, paid federal taxes of 11.8 percent of their income in federal taxes in 2009. Yet they have to compete against Bank of America who paid no federal taxes in 2009, thanks in part to overseas tax havens. The report points out that tax havens contributed to the global economic meltdown by permitting companies to hide risky investments and behavior. Scratch the surface behind the most shady dealings of the last decade and you’ll find an overseas tax haven. In a special investigative series, McClatchy News documented how Goldman Sachs, working through Cayman Island subsidiaries, “peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst.” TransOcean, owner of the Deepwater Horizon oil platform that exploded, killed 11 workers, and led to a devastating oil disaster in Gulf of Mexico, is itself an overseas tax haven. In 1999, TransOcean moved its incorporation from the United States to the Cayman Islands and then later to Switzerland, with the stated purpose of lowering its taxes. There is some progress in closing these loopholes, thanks to the Congressional leaders such as Sen. Levin and Rep. Lloyd Doggett. The Foreign Accounts Tax Compliance Act of 2009 increases transparency of cross border transactions. The “Economic Substance Doctrine,” which was included in the health care reform bill, requires companies to have a business reason for shifting assets other than tax avoidance. But there is plenty of further work to do. Congress should ban phony offshore corporations and block transfers of intellectual property, such as patents, designed to evade taxes. The campaign, Business and Investors Against Tax Haven Abuse, have identified nine specific policies to ban shady practices and generate tens of billions in revenue. If local businesses are waking up, so should ordinary taxpayers. We can’t build healthy and economically vibrant communities when our wealthiest citizens and corporations maintain an unfair advantage.

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SEIU, Labor Directly Lobby Geithner On Elizabeth Warren’s Behalf

July 20, 2010

The labor community is going to lend its considerable political clout to the effort to get Elizabeth Warren confirmed as the first head of the newly-created Consumer Protection Agency, going directly to the White House official who may stand in her way. On Tuesday, SEIU President Mary Kay Henry will “raise the point that Elizabeth Warren would be an excellent head of the newly created Consumer Protection Agency” in private talks with Treasury Secretary Timothy Geithner, according to a senior source with the union. The tete-a-tete adds an element of intrigue into the debate over who should head the new but important agency and could set up a now-familiar scenario in which the labor community finds itself butting heads with the White House’s economic team. Geithner has privately expressed skepticism with Warren’s candidacy for the post — despite the fact that she is considered the godmother of the very idea that consumers need a watchdog agency on their behalf. The Treasury Secretary is wary about the message that Warren’s appointment would send to the financial community and would prefer to appoint Michael Barr, a senior Treasury Department official who was instrumental in crafting financial regulatory reform. In public, the White House has insisted that it is open up to all candidacies, including Warren’s. But Geithner’s private musings have spurred an intense pushback. In addition to Kay Henry’s visit to Treasury, another major union, the AFL-CIO, has directly lobbied the White House on Warren’s behalf, according to a source with the union federation. Meanwhile, the Progressive Change Campaign Committee, a liberal activist group, has colleted roughly 140,000 signatures in a petition drive urging the White House to nominate Warren for the new post. Warren, it should be noted, could assume the post by executive appointment under the newly passed regulatory reform law. This would allow her to avoid a bitter confirmation fight in which she would need the support of 60 Senators in order to make it through the Senate. UPDATE : AFL-CIO President Richard Trumka released the following statement on Tuesday morning on regulatory reform and Warren’s candidacy: The AFL-CIO applauds the passage of the Wall Street Accountability Act and looks forward to the creation of the new Consumer Financial Protection Bureau – which has the potential to be a powerful and independent voice for consumers. In our view, there is only one candidate who is uniquely qualified and equipped to head this new agency. Harvard Law School Professor Elizabeth Warren originated the idea of the Consumer Financial Protection Bureau, and has proven as Chair of the Congressional Oversight Panel to be a strong and fearless advocate for the American public. We therefore strongly urge President Obama to appoint Professor Warren as Director of the new consumer protection bureau. Professor Warren’s appointment would make clear that under President Obama’s leadership, there truly will be accountability for Wall Street and fair treatment for the American public in the financial marketplace. FURTHER UPDATE : The SEIU has now put up a blog post on its website touting Warren for the post. Warren has spent her entire career fighting for the interests of working families and supporting policies to help rebuild our middle class. In fact, Warren even came up with the concept of a new consumer watchdog. As head of the new Consumer Financial Protection Bureau, she’ll work each and every day to stand up to Wall Street and demand commonsense financial products that will protect us from the next economic meltdown.

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Amy Siskind: The Obama Old Boys Club — Does the White House Economic Team Have a Woman Problem?

July 20, 2010

When FDR devised the policies which led our country out of the Great Depression, he had a secret weapon — his wife, Eleanor. Regrettably, as we struggle our way out of the worse economic crisis since then, Treasury Secretary Geithner is attempting to silence one of the few female voices in leading us out: Elizabeth Warren. This despite ample evidence that having more women in financial leadership, ala Lehman Brothers and Lehman Sisters , is optimal for balancing risk in our financial system. The two men leading our country’s economic policy, Geithner and Larry Summers, seem unwilling and perhaps incapable of working with women. That is why President Obama should not only nomination Elizabeth Warren to head the Consumer Finance Protection Bureau, but also proactively seek to add gender balance to his economic inner circle. Geithner’s opposition to Warren is not his first clash with women in power. One of his first acts in the role of Treasury Secretary was to attempt to push out FDIC Chairwoman Shelia Bair. As Rep. Barney Frank observed : “I think part of the problem now, to be honest, is Sheila Bair has annoyed the ‘old boys’ club…we have several regulators up in the tree house with a ‘no girls allowed’ sign…” Geithner’s inability to respectfully interact with women in positions of power was further in evidence when he was questioned in April by the Congressional Oversight Panel. Warren rightfully asked Geithner about AIG’s funneling billions of taxpayers’ dollars to Goldman Sachs: Do you know where the money went? Geithner could barely conceal his disdain: watch his angry, condescending response here . Of course, Warren was correct. Taxpayers did not need to pay Goldman Sachs one hundred cents on the dollar, resulting in Goldman booking a $6 billion dollar gain . Geithner should well know. Also in 2009 under his watch, our government strong-armed creditors of Chrysler into taking massive discounts to their original investments. Like Geithner, Larry Summers has a well documented pattern of not being able to work with and silencing women. In fact, our current economic crisis could have been adverted if Summers had paid attention to Brooksley Born, then chairwoman of the US Commodity Futures Trading Commission. In 1998, Born issued an unequivocal warning to Alan Greenspan, Robert Rubin, and Summers of the risks inherent in not regulating derivatives. Summers was one to silence Born : … “Summers called Ms. Born and chastised her for taking steps he said would lead to a financial crisis.” Michael Greenberger, a senior director at the commission at the time, noted : “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.” Likewise, in 2002, derivatives whiz Iris Mack voiced concerns to Summers about Harvard Endowment Company’s use of risky derivatives. A few months late, Mack was fired . Another woman silenced: another warning of risk unheeded. The problem goes deeper still. President Obama’s economic inner circle includes only one woman: Christina Romer. And of course, it is hardly a secret that tensions are high for Ms. Romer and her all male colleagues, including Larry Summers: Mrs. Romer was joking, she said in an interview, adding, “There are only a few times that I felt like smacking Larry.” Yet few laughed in the president’s presence. One can only imagine. Romer is girl trying to operate in a boys’ club. Which is why it’s time for President Obama to knock the door off of the boys’ club and let the girls into his inner economic circle. We can hardly afford to lose another immensely qualified woman. The opportunity cost to our economic prosperity is simply too great.

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Financial Reform Coalition Endorses Elizabeth Warren To Head New Consumer Agency

July 19, 2010

On Monday, a coalition of groups fighting to reform the nation’s financial system formally endorsed Harvard Law professor and bailout watchdog Elizabeth Warren to head the new Consumer Financial Protection Bureau. Americans for Financial Reform , an alliance of more than 250 organizations that has spent the past year advocating for financial reform legislation, said that Warren is the “most experienced, effective and independent person” to serve as the critical first chief of the new agency. The endorsement comes on the heels of Thursday’s Huffington Post report that Treasury Secretary Timothy Geithner opposes Warren’s nomination, and Friday’s statements by a senior White House adviser and top Geithner lieutenants at Treasury that Warren was “well qualified” for the position, yet nonetheless was only one of three top candidates. AFR includes top labor groups and progressive advocacy organizations with deep ties to the Obama administration, including AFL-CIO and the Service Employees International Union. “[Elizabeth] Warren has shown a steadfast and tireless commitment to protecting consumers throughout her distinguished career and is without question the best candidate to run the new CFPB,” Heather Booth, AFR’s director, said in a statement. “We join many others in encouraging the White House to quickly move to nominate Elizabeth Warren to head the Consumer Financial Protection Bureau,” Booth added. Some Democratic groups, like the Progressive Change Campaign Committee, announced their support for Warren on Friday. The PCCC even launched an online petition urging President Barack Obama to pick Warren as the chief of the new agency designed to protect consumers from predatory lenders. More than 100,000 people have signed it so far. “There was some urgency to move forward” on the endorsement, an AFR spokesman said. The group drafted its statement over the weekend, intending to get it out before Monday. The move may put increased pressure on the White House to select Warren to head the new entity. Consumer advocates and financial lobbyists agree that the first director will have a tremendous impact on the agency that will likely last beyond the director’s term. A strong consumer protector will ensure tough consumer protections for years, as the agency’s staff and the director’s successors will take their cue from precedent; a weak chief nearly guarantees an ineffectual agency that will fall short of the promises advocated by the soon-to-be enacted financial reform legislation. Sources say Geithner supports one of his top deputies, Michael Barr, for the position. Barr, a former law professor and Treasury Department official during the Clinton administration, has drawn raves from consumer groups for his role in ensuring the survival of the new agency as the financial reform bill made its way through Congress. Though reformers have clashed with Barr on other aspects of the bill, he’s widely praised for his efforts on consumer protection. But the agency is largely Warren’s idea. A noted defender of the middle class, she’s widely embraced by progressives and Democrats in Congress. “Elizabeth Warren is a great, great champion for consumers and middle-class families across the country,” White House senior adviser David Axelrod told reporters on a Friday conference call. “She has helped inform this effort greatly and what has been done here in many ways reflects something she’s been advocating for years and years and years.” Warren introduced the idea for a consumer agency in a 2007 journal article. She’s done extensive research on the debt-strapped middle class, bankruptcy and the working poor. Geithner’s spokesman, Andrew Williams, called Warren a “driving force” behind the new agency’s creation. Warren currently serves as chair of the Congressional Oversight Panel, a watchdog created to keep tabs on the federal bailout. Barr serves as Treasury’s assistant secretary for financial institutions. The third candidate, Eugene Kimmelman, is a former top official at consumer advocacy groups Consumers Union, the Consumer Federation of America, Public Citizen. He now works in the Justice Department’s antitrust division. Kimmelman’s former employers are part of AFR. ************************* Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news.

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Rep. Alan Grayson: Lies, Damned Lies, and Rupert Murdoch

July 17, 2010

Well, we did it! We got an independent audit of the Federal Reserve ready for the President’s signature. That’s what the Senate’s vote to approve the financial reform bill means; the audit authority is in there. Now we will find out which zombie banks on Wall Street got a new lease on life with Fed money, as the Fed’s balance sheet grew by over one trillion dollars. Funny enough, the world of big money isn’t collapsing — as the Fed threatened it would if an audit of the Fed ever came close to passing. But if you happened to read Rupert Murdoch’s Wall Street Journal on May 7, 2010, you would have heard a different story. “Plan for Congressional Audits of Fed Dies in Senate,” was the headline. Exactly what Wall Street wanted you to think. Whoops! It looks like the Wall Street Journal has gone the way of Rupert Murdoch’s flagship holding, Fox News. But we won. And so, to celebrate, we took that Wall Street Journal article from two months ago, did a little photoshopping, and put this together: We did this. Together. At every moment, as the Fed and Wall Street sought to undermine this cause, it was the phone calls, letters, e-mails, blogging and sheer power of the people — ordinary people who cared — that beat them back. We have delivered a succinct message to Wall Street and the Fed: “We Can Beat You.” We will beat you. As often as we need to. And when the battle is over, as Lincoln said, there will be “a new birth of freedom, and government of the people, by the people, for the people, shall not perish from the earth.”

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Tom Donohue: Jobs for America

July 15, 2010

Eighteen months ago, in the midst of the greatest economic crisis since the Great Depression, the business community worked with Congress and the president to rescue the economy and put Americans back to work. We supported programs to stabilize our financial institutions, bolster key industries, and help the unemployed. Working together, we succeeded in preventing another depression. Although our economy may be growing again, it is not growing nearly fast enough to create the jobs Americans want and need. In fact, if we continue on our current course, we may lose even more jobs and we could end up in a double-dip recession. So, what happened to slow our progress? And more importantly, what can we do about it? Very simply, the Congressional majority and the administration took their eyes off the ball. Instead of continuing their partnership with the business community and embracing proven ideas for job creation, they attacked and demonized key industries. They embarked on a course of rapid government expansion, major tax increases, and suffocating regulations — going well beyond what had to be done to keep the economy out of a depression. They have allowed the unions to call the shots on the nation’s trade agenda, and as a result, we are lagging far behind our global competitors. And while it is true that they inherited a big deficit, their spending policies have made the problem far worse — and completely unsustainable. All of this has injected tremendous uncertainty into our economy — and uncertainty is the enemy of investment, growth, and jobs. Banks, investors, companies, small businesses, and consumers are worried. They don’t know what is going to hit them next. Small businesses, which are so vital to the creation of new jobs, can’t get the capital they need to grow — or they don’t want to spend the money they have. Many are struggling just to survive. Larger corporations overall have plenty of cash but they are sitting on it. They cannot, in good faith to their shareholders, incur the heavy obligations of expanding and adding to payroll at this time. Neither large nor small businesses know what their health care costs are going to be under the new law. And they’re not sure where they will find future capital under the financial reform bill. They don’t know what the new workplace and EPA rules might be. They are facing the prospect of major tax increases and perhaps a price on carbon to boot. They see weak consumer demand at home and abroad. Under these circumstances, if you were an investor, or a corporate decision-maker, or a small business owner, would you make a big decision today to expand and create more jobs here in the United States? Unfortunately, the answer for most is no. And so today, over 16 percent of the American workforce is either unemployed, underemployed, or has given up looking for a job altogether. Government’s role is to establish the right conditions so that the private sector can invest, compete, create new products and services, and put Americans back to work. But that’s not happening. No matter how well-intentioned or politically popular a suggested law or regulation might be, the question should always be asked — what will be the impact on American jobs? We fear that this question is often ignored in the halls of our government today. Our current economic direction is not working. It’s not helping those who need help the most — the workers and the job creators who are struggling to keep them employed. The business community wants to help our economy and the country succeed. We don’t want to wait until after the election. We’re ready to work with anyone who believes, like we do, that creating economic growth and jobs is the nation’s highest priority. And we don’t care who gets the credit. Yesterday we offered a workable roadmap to greater prosperity and more jobs. It is a plan that is rooted in the principles of American free enterprise — not a perfect system by any means, but the very best system ever devised to create jobs, hope, and opportunity. It is time to go to work and create Jobs for America.

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Congressional Ethics Inquiry Examines Fundraisers Before House Vote On Financial Reform

July 15, 2010

Lawmakers take contributions every day from corporate executives and lobbyists hoping for their votes. The question of whether that represents business as usual in Washington or an ethics breach is at the heart of a far-reaching Congressional ethics investigation that is stirring concerns throughout Washington and Wall Street. The Office of Congressional Ethics has sent corporate donors and fund-raising hosts more than three dozen requests for documents involving eight members who solicited and took large contributions from financial institutions even as they were debating the landmark regulatory bill, according to lawyers involved in the inquiry.

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Small Banks STILL Struggling Despite Wall Street Bailout

July 14, 2010

The main bank bailout program anticipated banks springing back from the crisis and raising fresh funds to repay the government, the report says. That’s exactly what happened to most of the big banks that took the most bailout money. Yet small banks continue to struggle, dragged down by souring loans for commercial real estate and high unemployment. Hundreds more small banks are expected to fail by the end of next year. The 690 small banks that took bailout money are even worse off, according to a report Wednesday from the Congressional Oversight Panel, which monitors the $700 billion financial bailout. Already, one in seven has failed to pay a quarterly dividend due to Treasury. They can’t afford the payments, which will nearly double in 2013. That’s troubling because small banks’ crucial role in lending to small businesses and supporting economic recovery, said Elizabeth Warren, who chairs the panel. The program “was not intended as a bailout for Wall Street,” said Warren, who also is a professor at Harvard Law School. “It was intended to support … homeownership, retirement savings and banks across the country.” Warren said the bailout bill, known as the Trouble Asset Relief Program, did stabilize the financial system. But she said that was only one of the program’s goals. She said efforts to boost lending and support consumers have been less successful. “There is very little evidence to suggest that the (bailouts) led small banks to increase lending,” the report says. In the end, that could mean that the biggest banks get even bigger, the report says. Dozens or hundreds of bailed-out banks could collapse or consolidate because they can’t afford their obligations to taxpayers, it says. That would leave the handful of biggest banks with an even larger share of the banking system. “The result could be that ‘too big to fail’ banks grow even bigger,” Warren said. Treasury spokesman Mark Paustenbach disputed the findings, saying in a statement that the bailouts helped many of the banks “weather the storm and continue to extend credit in the economy.” The Congressional Oversight Panel was created by Congress to report on whether the bailouts are meeting their goals. The law also requires regular audits by the Government Accountability Office and creates a special inspector general to investigate fraud and other problems.

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Simon Johnson: The Kanjorski Surprise – Now It Gets Interesting

July 9, 2010

This entry is crossposted on The Baseline Scenario . The bank lobbyists, it turns out, missed one.

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Laurence J. Kotlikoff: America’s Insolvency Is No Myth — Krugman’s Latest Pretense

July 6, 2010

I wish I were as sure of anything as Paul Krugman is of everything. But it’s his unfounded moral superiority that really goads. In his July 2nd NY Times column, Myths of Austerity, Krugman writes “When I was young and naïve, I believed that important people took positions based on careful considerations of the options. Now I know better. Much of what Serious People believe rests on prejudice, not analysis.” I agree with this last sentence, but I’d substitute “Paul Krugman” for “Serious People.” What I and other economists expected, when Krugman was chosen to write for the Times, was impartial, fact-based analysis, showcasing economics’ ability to shed real light on critical issues of the day. We also expected him to act like a professional economist and represent fairly alternative policy positions before drawing his conclusion. Instead, we’ve been served a highly political, pretentious rant, of which this column is a fine example. I share Krugman’s social concerns, but his ratio of politics and frequent personal attacks to economics is appallingly high. In his column, Krugman derides those who are rightfully alarmed by America’s demonstrable fiscal insolvency and pushing for immediate policy adjustments as “policy elites” trafficking in “figments of imagination,” and engaged in “sheer speculation,” with no basis “on either evidence or careful analysis.” The Congressional Budget Office’s (CBO) 75-year fiscal forecast (called the Alternative Fiscal Scenario) is no figment of imagination. This year’s forecast, appeared two days before Krugman’s piece and shows that the U.S. is in terrible fiscal shape – worse than Greece. Perhaps Krugman missed it.

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Video: Lawmakers Agree on Wall Street Overhaul Legislation: Video

June 25, 2010

June 25 (Bloomberg) — Congressional negotiators today approved the most sweeping overhaul of U.S. financial regulation since the Great Depression, reshaping oversight of Wall Street. The legislation still needs to be approved by the full House and Senate. Bloomberg’s Peter Cook reports. (Source: Bloomberg)

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Facing Criticism Amid Gains For Wall Street, Dems Strengthen Some Investor Protections

June 24, 2010

Though Congressional negotiators continued to chip away at financial reform throughout Thursday’s conference between the House and the Senate, investors managed to eke out two victories thanks to a handful of key Democrats — some of whom reversed their earlier, more Wall Street-friendly positions following an onslaught of criticism. Democrats amended the final reform package Thursday to limit say-on-pay, or annual investor votes on executive compensation; made sure the Securities and Exchange Commission would still be beholden to Congressional appropriations rather than full self-funding through fees; and refused to legislate around a Supreme Court precedent that currently assigns no liability to third-parties, like consultants and accountants, when found to be “abettors of fraud.” But although they took significant losses on the day, investors — who were outgunned on all fronts coming into Thursday’s negotiations — won for the SEC the authority to apply a fiduciary standard to brokers who provide investment advice to retail investors, as well as the authority to allow investors better access to proxy forms so they can rein in errant company bosses and boards. These victories stood in stark contrast to a restrictive measure, approved by the Senate conferees earlier in the week, that curbed the SEC’s ability to protect average investors from brokers who weren’t required to act in their best interests. It also marked a reversal from the measure introduced last week at the behest of the White House by Senate Banking Chairman Chris Dodd (D-Conn.) to restrict shareholders’ access to the proxy and thus restrict their ability to limit executive compensation and risk-taking. Given the mounting wins for Wall Street, investor advocates have been arguing that Democrats were effectively turning a bill designed to strengthen protections for consumers and taxpayers into a bill that was “gutting” post-Enron reforms. Arthur Levitt, chairman of the Securities and Exchange Commission from 1993 to 2001, wrote in an op-ed for Thursday’s Wall Street Journal that the bill is a “sellout of investor interests,” full of “many missed opportunities.” Levitt called the Dodd proposal on proxy access, which would have limited such access to those investors who controlled at least 5 percent of a firm’s shares, “comically useless.” “As a lifelong Democrat … I had hoped the financial reform bill would be the best example of my party’s long-standing reputation for standing on the side of individual investors,” Levitt wrote. “It’s not.” Referring to Congressional Democrats, Levitt wrote that “these politicians are investor advocates in their press releases alone.” On Thursday, though, Democrats reversed course. House Financial Services Committee Chairman Barney Frank fought back against the push by the Senate, led by South Dakota Democrat Tim Johnson , to essentially prohibit the SEC from compelling brokers to act in retail investors’ best interests, otherwise known as being held to a fiduciary standard. Frank won that battle. Meanwhile, Sen. Charles Schumer (D-N.Y.) and Rep. Maxine Waters (D-Calif.) battled the Dodd- and White House-led provision to limit shareholder input. They won. After a six-month study of little consequence, the SEC can move to protect average investors from brokers’ worst impulses. The agency will also have full authority to implement changes opening up corporate proxies to shareholders, without limits imposed by Congress. The SEC has been considering a 1-percent to 3-percent threshold of stock ownership for investors looking to rein in public companies. “This was a good day for investors,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “The conference just delivered on the top priority for institutional investors … [and] delivered on the top priority for retail investors … on fiduciary duty.” The Council of Institutional Investors, a nonprofit association of public, union and corporate pension funds with combined assets that exceed $3 trillion, supports the measure regarding proxy access. Lynn E. Turner, the SEC’s chief accountant from 1998 to 2001, said Levitt’s piece had an impact, as did Thursday’s revelation that Dodd penned a letter to the SEC in 2007 expressing his opposition to a 5-percent threshold for proxy access — exactly what he pushed for last week. Turner cautioned, though, that there will be more fights to come at the SEC when the agency begins to introduce and implement its new rules. “The battle is far from over,” he wrote in an e-mail.

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Facing Criticism Amid Gains For Wall Street, Dems Strengthen Some Investor Protections

June 24, 2010

Though Congressional negotiators continued to chip away at financial reform throughout Thursday’s conference between the House and the Senate, investors managed to eke out two victories thanks to a handful of key Democrats — some of whom reversed their earlier, more Wall Street-friendly positions following an onslaught of criticism. Democrats amended the final reform package Thursday to limit say-on-pay, or annual investor votes on executive compensation; made sure the Securities and Exchange Commission would still be beholden to Congressional appropriations rather than full self-funding through fees; and refused to legislate around a Supreme Court precedent that currently assigns no liability to third-parties, like consultants and accountants, when found to be “abettors of fraud.” But although they took significant losses on the day, investors — who were outgunned on all fronts coming into Thursday’s negotiations — won for the SEC the authority to apply a fiduciary standard to brokers who provide investment advice to retail investors, as well as the authority to allow investors better access to proxy forms so they can rein in errant company bosses and boards. These victories stood in stark contrast to a restrictive measure, approved by the Senate conferees earlier in the week, that curbed the SEC’s ability to protect average investors from brokers who weren’t required to act in their best interests. It also marked a reversal from the measure introduced last week at the behest of the White House by Senate Banking Chairman Chris Dodd (D-Conn.) to restrict shareholders’ access to the proxy and thus restrict their ability to limit executive compensation and risk-taking. Given the mounting wins for Wall Street, investor advocates have been arguing that Democrats were effectively turning a bill designed to strengthen protections for consumers and taxpayers into a bill that was “gutting” post-Enron reforms. Arthur Levitt, chairman of the Securities and Exchange Commission from 1993 to 2001, wrote in an op-ed for Thursday’s Wall Street Journal that the bill is a “sellout of investor interests,” full of “many missed opportunities.” Levitt called the Dodd proposal on proxy access, which would have limited such access to those investors who controlled at least 5 percent of a firm’s shares, “comically useless.” “As a lifelong Democrat … I had hoped the financial reform bill would be the best example of my party’s long-standing reputation for standing on the side of individual investors,” Levitt wrote. “It’s not.” Referring to Congressional Democrats, Levitt wrote that “these politicians are investor advocates in their press releases alone.” On Thursday, though, Democrats reversed course. House Financial Services Committee Chairman Barney Frank fought back against the push by the Senate, led by South Dakota Democrat Tim Johnson , to essentially prohibit the SEC from compelling brokers to act in retail investors’ best interests, otherwise known as being held to a fiduciary standard. Frank won that battle. Meanwhile, Sen. Charles Schumer (D-N.Y.) and Rep. Maxine Waters (D-Calif.) battled the Dodd- and White House-led provision to limit shareholder input. They won. After a six-month study of little consequence, the SEC can move to protect average investors from brokers’ worst impulses. The agency will also have full authority to implement changes opening up corporate proxies to shareholders, without limits imposed by Congress. The SEC has been considering a 1-percent to 3-percent threshold of stock ownership for investors looking to rein in public companies. “This was a good day for investors,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “The conference just delivered on the top priority for institutional investors … [and] delivered on the top priority for retail investors … on fiduciary duty.” The Council of Institutional Investors, a nonprofit association of public, union and corporate pension funds with combined assets that exceed $3 trillion, supports the measure regarding proxy access. Lynn E. Turner, the SEC’s chief accountant from 1998 to 2001, said Levitt’s piece had an impact, as did Thursday’s revelation that Dodd penned a letter to the SEC in 2007 expressing his opposition to a 5-percent threshold for proxy access — exactly what he pushed for last week. Turner cautioned, though, that there will be more fights to come at the SEC when the agency begins to introduce and implement its new rules. “The battle is far from over,” he wrote in an e-mail.

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Facing Criticism Amid Gains For Wall Street, Dems Strengthen Some Investor Protections

June 24, 2010

Though Congressional negotiators continued to chip away at financial reform throughout Thursday’s conference between the House and the Senate, investors managed to eke out two victories thanks to a handful of key Democrats — some of whom reversed their earlier, more Wall Street-friendly positions following an onslaught of criticism. Democrats amended the final reform package Thursday to limit say-on-pay, or annual investor votes on executive compensation; made sure the Securities and Exchange Commission would still be beholden to Congressional appropriations rather than full self-funding through fees; and refused to legislate around a Supreme Court precedent that currently assigns no liability to third-parties, like consultants and accountants, when found to be “abettors of fraud.” But although they took significant losses on the day, investors — who were outgunned on all fronts coming into Thursday’s negotiations — won for the SEC the authority to apply a fiduciary standard to brokers who provide investment advice to retail investors, as well as the authority to allow investors better access to proxy forms so they can rein in errant company bosses and boards. These victories stood in stark contrast to a restrictive measure, approved by the Senate conferees earlier in the week, that curbed the SEC’s ability to protect average investors from brokers who weren’t required to act in their best interests. It also marked a reversal from the measure introduced last week at the behest of the White House by Senate Banking Chairman Chris Dodd (D-Conn.) to restrict shareholders’ access to the proxy and thus restrict their ability to limit executive compensation and risk-taking. Given the mounting wins for Wall Street, investor advocates have been arguing that Democrats were effectively turning a bill designed to strengthen protections for consumers and taxpayers into a bill that was “gutting” post-Enron reforms. Arthur Levitt, chairman of the Securities and Exchange Commission from 1993 to 2001, wrote in an op-ed for Thursday’s Wall Street Journal that the bill is a “sellout of investor interests,” full of “many missed opportunities.” Levitt called the Dodd proposal on proxy access, which would have limited such access to those investors who controlled at least 5 percent of a firm’s shares, “comically useless.” “As a lifelong Democrat … I had hoped the financial reform bill would be the best example of my party’s long-standing reputation for standing on the side of individual investors,” Levitt wrote. “It’s not.” Referring to Congressional Democrats, Levitt wrote that “these politicians are investor advocates in their press releases alone.” On Thursday, though, Democrats reversed course. House Financial Services Committee Chairman Barney Frank fought back against the push by the Senate, led by South Dakota Democrat Tim Johnson , to essentially prohibit the SEC from compelling brokers to act in retail investors’ best interests, otherwise known as being held to a fiduciary standard. Frank won that battle. Meanwhile, Sen. Charles Schumer (D-N.Y.) and Rep. Maxine Waters (D-Calif.) battled the Dodd- and White House-led provision to limit shareholder input. They won. After a six-month study of little consequence, the SEC can move to protect average investors from brokers’ worst impulses. The agency will also have full authority to implement changes opening up corporate proxies to shareholders, without limits imposed by Congress. The SEC has been considering a 1-percent to 3-percent threshold of stock ownership for investors looking to rein in public companies. “This was a good day for investors,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “The conference just delivered on the top priority for institutional investors … [and] delivered on the top priority for retail investors … on fiduciary duty.” The Council of Institutional Investors, a nonprofit association of public, union and corporate pension funds with combined assets that exceed $3 trillion, supports the measure regarding proxy access. Lynn E. Turner, the SEC’s chief accountant from 1998 to 2001, said Levitt’s piece had an impact, as did Thursday’s revelation that Dodd penned a letter to the SEC in 2007 expressing his opposition to a 5-percent threshold for proxy access — exactly what he pushed for last week. Turner cautioned, though, that there will be more fights to come at the SEC when the agency begins to introduce and implement its new rules. “The battle is far from over,” he wrote in an e-mail.

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Financial Reform Conference: Auto Dealers Beat Obama, Win Exemption From Consumer Protection Agency

June 22, 2010

WASHINGTON (AP) — In the end, the political clout of 18,000 auto dealers scattered nationwide was too much even for President Barack Obama. House and Senate negotiators putting final shape to a sweeping overhaul of Wall Street regulations all but agreed Tuesday to exclude auto dealers from the oversight of a consumer financial protection bureau. “The political reality is that those of us who have fought against an auto dealer carve-out can’t prevail,” Representative Luis Gutierrez, D-Ill. The House bill approved last December contained an exemption for auto dealers, among others, from lending regulations issued by the proposed consumer agency. The Senate did not, but the sentiment was there. In a 60-30 nonbinding vote last month, senators called for the auto dealer loophole. Under a compromise offered by Senate Democrats Tuesday, auto dealers would still be covered by federal truth-in-lending rules that would have to conform to regulations adopted by the consumer agency. The Federal Reserve, which oversees truth-in-lending regulations, could adopt different rules but would have to explain its decision. At the same time, the Federal Trade Commission would be given authority to write new rules for auto dealers under accelerated procedures. But the bottom line would be that auto dealers would be exempt from direct supervision by the consumer financial protection bureau. The exclusion would not apply to auto dealers that provide their own financing, such as Carmax, or to giant auto lender GMAC. The Senate compromise, if accepted by House negotiators, would be one of President Barack Obama’s most high profile losses in his efforts to overhaul Wall Street regulations. The main contours of the House and Senate bills generally match the administration’s goals, but Obama has personally lobbied against efforts to carve auto dealers out of the consumer agency’s jurisdiction. The administration has even made a national security case, arguing that military personnel have been especially prone to predatory lending schemes by car dealers. Auto dealers have used their high visibility in their local communities to fight inclusion in the bill. They say they only process the loans and then turn them over to other lending institutions to administer and service. The National Auto Dealers Association continued to press for the House exclusion, objecting to the Senate proposal’s requirement that the Fed’s truth-in-lending rules hew to those issued by the consumer agency and that the FTC be given the authority to write auto dealer rules on a fast track. The discussion on excluding auto dealers is one of many negotiations under way in a joint House-Senate panel that is working out differences between the House and Senate bills. Panel members must still iron out some of the most difficult differences, including how to regulate the complex securities known as derivatives and how far to go in restricting the investment activities of banks. On Tuesday, Rep. Barney Frank, the joint committee chairman, and Senate Banking Committee Chairman Christopher Dodd prodded the panel to conclude its work by Thursday in time for Obama’s appearance before the Group of 20 nations in Toronto this weekend. “It would be a grave error for the U.S. to do things where we could be gamed by other countries,” Frank, D-Mass., said. Treasury Secretary Timothy Geithner made a similar point while testifying before the Congressional Oversight Panel, an independent committee established to look over Treasury’s financial rescue fund. Geithner stressed the need for the United States to shape a consensus on international financial regulations. “The reforms Congress is about to enact will be a good model for the world and will give us enormous credibility in trying to, again, pull the world to those higher standards,” he said.

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Swipe Fee Deal: Merchants Beat Wall Street

June 21, 2010

Wall Street reform negotiators struck a deal Monday to regulate the swipe fees that major banks and credit card companies can charge to merchants — costs that are passed on to consumers in the form of higher prices. The cost to merchants of using credit cards has more than doubled since 2003 even as merchants’ profits have declined, a contradiction only explained by the monopolistic system that lets banks continuously raise swipe fees. The deal, struck between Sen. Dick Durbin (D-Ill.) and key House negotiators, leaves out some elements that consumer advocates had been fighting for. It allows fees charged to reloadable, prepaid debit cards — generally used by the poor — to remain unregulated. And it allows an exemption for states that use debit cards to dole out benefits. But, for the first time, banks and credit card companies will face restrictions on the fees they can charge merchants for the privilege of accepting credit and debit cards. (Read a summary of the deal here. ) Last week, merchants descended on the Capitol to make the case for reform. “This agreement is a major victory for small business owners and consumers fed up with big bank and credit card industry rip-offs,” said Rep. Peter Welch, a House Democrat from Vermont who was involved with the negotiations. “It preserves key protections for the grocers, retailers and country store owners most affected by out-of-control swipe fees, while addressing legitimate concerns of the industry. I am confident this agreement will be approved by the full committee because every conferee represents small business owners who are tired of serving as a piggy bank for Visa and MasterCard.” Welch was the champion of the measure in the House; his satisfaction with the deal sends a signal to progressives about the value of the compromise. Consumer advocates told HuffPost that, at first blush, the deal still leaves in place language that would drive down swipe fees and save consumers and merchants money. The merchants are pleased with the compromise. “This is a good compromise. Everyone made real concessions, but this remains a positive step for small businesses and consumers. This compromise should be passed by the conference committee and the Congress as a whole,” Doug Kantor, a lobbyist who represents the merchants, told HuffPost. Still, said Kantor, some of the compromises cut deeply into the reform the merchants were looking for. “There are things that changed here that are really tough for us to take,” he said. The earlier version of the measure would have allowed merchants to give discounts for using one credit card over another if it charged a lower swipe fee. The credit cards succeeding in stripping that provision and can continue to collude to block competition. Kantor called it an indefensible anti-trust violation that will be dispatched of eventually, but for now, it lives on. The prepaid debit card exemption was designed to satisfy Russell Simmons and the Congressional Black Caucus, which worried that the earlier version of the legislation would drive prepaid debit cards out of the market and force the poor to rely instead on predatory institutions such as payday lenders. The compromise is a win for Simmons, who owns a debit card company. Last week, Simmons sent a letter to Durbin outlining his concerns, which he also ran on HuffPost. Simmons charges consumers exorbitant fees to allow them to put their own money onto a prepaid debit card. (His card company’s website lists the thicket of charges a user of his cards must pay.) Another element of the compromise keeps authority for regulating swipe fees with the Federal Reserve, whereas the original amendment gave such authority to the consumer financial protection bureau that will be created by reform and will likely be housed with the Fed. Durbin, in crafting the compromise, said his spokesman, worked closely with Chairmen Chris Dodd and Barney Frank, as well as Welch and Reps. Greg Meeks (D-N.Y.), Carolyn Maloney (D-N.Y.) and Luis Gutierrez (D-Ill.). “The Congressman is pleased that we appear to have arrived at a compromise that brings fairness to our electronic payments system while avoiding unintended consequences for community banks, credit unions, and consumers,” said Douglas Rivlin, a spokesman for Gutierrez. “I’m pleased that we were able to reach an agreement which makes minor changes to strengthen consumer protections and bring competition to a market where there is none,” Durbin said. “Most importantly, we’ve addressed the concerns of states regarding their ability to provide services to the unemployed and the concerns of small financial firms regarding their ability to provide services to the unbanked.”

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AIG’s Benmosche Set to Outlast Predecessors in `Hot Seat’ as Insurer’s CEO

June 18, 2010

By Hugh Son June 18 (Bloomberg) — Robert Benmosche , who said the U.S. will be repaid with interest for American International Group Inc. ’s bailout, is set to become the insurer’s longest-serving chief executive officer since the firm’s near-collapse in 2008. Benmosche, 66, will begin his 12th month leading New York- based AIG in July. That is longer than predecessors Edward Liddy , who retired after about 11 months in August 2009, and Robert Willumstad , who was ousted after fewer than 100 days as a condition of the insurer’s 2008 government rescue. AIG was bailed out after losses on derivatives tied to mortgages. “Given that he survived 12 months, I’d say Benmosche learned very quickly that this is not just another CEO job,” said Phillip Phan , professor at the Johns Hopkins Carey Business School in Baltimore. “He has to create a more sustainable, smaller operation, to move away from derivatives, and he’s having to do it all in the public eye.” Benmosche must balance the demands of regulators and lawmakers while divesting AIG units to repay loans within the insurer’s $182.3 billion rescue, a goal that stymied his predecessor. Liddy, who was twice grilled by Congress over bonuses paid during his tenure, said in a farewell letter to staff that the job left him with “a few bruises.” AIG posted more than $100 billion in net losses driven by soured housing market bets in the six quarters before Benmosche, the former CEO of MetLife Inc. , took control of AIG. Weeks after starting, Benmosche had to apologize for telling staff that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to workers who got retention bonuses. Benmosche then drew criticism for vacationing in Croatia in his first month at AIG. ‘Taxpayer Ire’ “The unprecedented amount of taxpayer ire is what made the job such a hot seat, but Benmosche didn’t let himself get pushed around by the New York Fed,” said Clark Troy , an analyst for research firm Aite Group. “He has this presence and force of will that imparts confidence.” The Federal Reserve Bank of New York and Treasury Department have funded AIG’s rescue. AIG has climbed about 39 percent through yesterday on the New York Stock Exchange since Aug. 7, the last trading day before Benmosche replaced Liddy. That compares with the 34 percent decline under Liddy and the approximately 90 percent plunge under Willumstad, who was ousted before he could unveil a plan to restructure AIG. Under Benmosche, AIG halted the auctions of units including a U.S. investment advisory group, a mortgage guarantor and a pair of Japanese life insurers. The CEO told employees in August that he would only sell businesses for adequate prices, and in March announced deals to sell two life insurance divisions. AIG has posted a profit in three of the previous four quarters as investment results improved. ‘You’ll Get Your Money’ “I’m confident you’ll get your money, plus a profit,” Benmosche told the Congressional Oversight Panel in Washington during a May 26 hearing to examine the AIG rescue. Benmosche negotiated a $7 million annual salary compared with $1 a year for Liddy. Benmosche has opted against holding conference calls to discuss quarterly results with investors, instead releasing audio statements . The past four CEOs all hosted calls. AIG will first repay a Fed credit line with proceeds from divesting the non-U.S. life divisions and then turn to Treasury obligations, he said. The company owes about $26 billion on a Fed credit line and $49 billion to the Treasury. Benmosche has been aided by the fact that firms including BP Plc and Goldman Sachs Group Inc. have gotten more negative media attention and congressional criticism this year than AIG, Troy said. Goldman Sachs, BP Lloyd Blankfein , CEO of Goldman Sachs, testified before a Senate investigations panel in April after the New York-based bank was sued by the Securities and Exchange Commission for fraud tied to mortgage-linked assets. BP’s Tony Hayward was denounced yesterday by U.S. lawmakers for failing to answer questions about the causes of the oil well explosion in the Gulf of Mexico that killed 11 people and caused the leaking of as much as 60,000 barrels of oil a day. AIG’s agreement to sell its main Asian unit to Prudential Plc collapsed early this month, after the London-based insurer’s investors balked at the $35.5 billion price. AIG could raise the same amount in an initial public offering, the firm’s bankers have told Treasury. The agreement to sell another non-U.S. unit, American Life Insurance Co., to MetLife for $15.5 billion is expected to be completed by year-end, Benmosche has said. Benmosche said in April that he expects to remain at AIG for another year or two and he’ll help prepare the bailed-out company for his departure. ‘Appropriately Leveraged’ “Each year the demands of the job and the requirements are different as we begin to evolve from a large, giant, overleveraged company to one that is much more appropriately leveraged and a more focused company with less businesses,” Benmosche said in the April 1 interview. Benmosche is winding down the derivatives unit that brought the entire company to the brink of failure in 2008. The portfolio of trades shrank to about $755 billion on March 31 from $941 billion at the end of 2009. AIG was run for almost four decades through March 2005 by Maurice “Hank” Greenberg , who built the company into the world’s largest insurer. Martin Sullivan then held the top post for three years, until subprime-mortgage related losses led to his replacement by Willumstad in June 2008. AIG shares dropped by about half during Sullivan’s tenure. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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Lawmakers Consider Changes to SEC Authority, Brokerages’ Duty to Clients

June 16, 2010

By Alison Vekshin June 16 (Bloomberg) — Congressional negotiators today weighed proposals to strengthen investor protections and the powers of the Securities and Exchange Commission as they sought to merge two versions of regulatory-overhaul legislation. House negotiators agreed to an amendment to create an office at the SEC to respond to whistleblower complaints and offered a plan to require the SEC to impose a fiduciary duty on broker-dealers providing advice to retail customers. “We’re trying to create a standard across the board for both investment advisers and for broker-dealers in dealing with their customers. It seems to me this is long overdue,” Representative Paul Kanjorski , a Pennsylvania Democrat, said at a negotiating session held today in Washington. Lawmakers are resolving differences between the bill the House approved in December and the version the Senate produced last month. Negotiators yesterday agreed to changes dealing with the insurance industry and credit-rating companies. The lawmakers are scheduled today to consider changes to language dealing with executive compensation, including a plan to hold shareholder votes on so-called golden parachute packages. They will also debate changes to a plan to require a congressional audit of the Federal Reserve. The changes offered by House negotiators will have to be approved by their Senate counterparts before they can be added to the bill. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Tax Provision in Jobs Measure Would `Cripple’ Small Businesses, Snowe Says

June 11, 2010

By Ryan J. Donmoyer June 11 (Bloomberg) — Senator Olympia Snowe , a Maine Republican courted by Democrats as a possible swing vote for a jobs bill, said a provision in the measure would unfairly saddle small businesses with new payroll taxes. In a statement released with fellow Republican Senator Mike Enzi of Wyoming that Snowe posted to her Web site, she called the tax a “poison pill” that would “cripple” so-called S corporations, the most common business structure. The proposal would force such corporations to pay as much as a 15.3 percent payroll tax on earnings reinvested in the business rather than taken in salary, she said. “This is a job-killing tax hike that will force entrepreneurs across the nation to retrench and reconsider any plans for hiring employees or expanding their business,” Snowe said in the statement. Democrats control 59 of the Senate’s 100 members and need 60 votes to clear a procedural hurdle that could lead to passage of the jobs bill. The measure would reinstate unemployment aid for jobless workers who’ve exhausted benefits, renew about three-dozen tax breaks and impose higher taxes on executives of buyout firms and other investment partnerships. The provision raising Snowe’s ire is aimed at closing the so-called John Edwards loophole in tax law, a name coined by Republicans after the former North Carolina senator organized his law practice in a way that to avoided the 2.9 percent Medicare tax on about $26 million in earnings. Edwards, a Democrat later nominated to be vice president, was the sole shareholder in his S corporation. ‘Reputation and Skill’ The legislation would impose the Medicare tax and applicable Social Security taxes on such earnings when the company’s “principal asset” is the “reputation and skill” of less than four employees. Social Security taxes of 12.4 percent apply only to the first $106,800 of an individual’s earnings; Medicare taxes have no cap. The provision is projected by the congressional Joint Committee on Taxation to generate about $11.3 billion in revenue over a decade starting next year. Snowe and Enzi said the provision would go farther than stopping abuses by imposing levies on earnings that aren’t actually distributed to shareholders or partners in a company. “Retained earnings are the single biggest form of capital for small business and this provision would decimate that capital at a time when other sources remain difficult to access,” the senators said. According to the Internal Revenue Service , S corporations comprise about 62 percent of all corporations and have been the most commonly used business entity since 1997. In 2003, the last year for which data was available, about 3.3 million S corporation tax returns were filed, up 5.9 percent from the year before. Snowe and Enzi said they filed an amendment to strike the provision from the bill; under congressional budget rules, the provision would have to be replaced with another projected to raise the same amount of money. To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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Tax Provision in Jobs Measure Would `Cripple’ Small Businesses, Snowe Says

June 11, 2010

By Ryan J. Donmoyer June 11 (Bloomberg) — Senator Olympia Snowe , a Maine Republican courted by Democrats as a possible swing vote for a jobs bill, said a provision in the measure would unfairly saddle small businesses with new payroll taxes. In a statement released with fellow Republican Senator Mike Enzi of Wyoming that Snowe posted to her Web site, she called the tax a “poison pill” that would “cripple” so-called S corporations, the most common business structure. The proposal would force such corporations to pay as much as a 15.3 percent payroll tax on earnings reinvested in the business rather than taken in salary, she said. “This is a job-killing tax hike that will force entrepreneurs across the nation to retrench and reconsider any plans for hiring employees or expanding their business,” Snowe said in the statement. Democrats control 59 of the Senate’s 100 members and need 60 votes to clear a procedural hurdle that could lead to passage of the jobs bill. The measure would reinstate unemployment aid for jobless workers who’ve exhausted benefits, renew about three-dozen tax breaks and impose higher taxes on executives of buyout firms and other investment partnerships. The provision raising Snowe’s ire is aimed at closing the so-called John Edwards loophole in tax law, a name coined by Republicans after the former North Carolina senator organized his law practice in a way that to avoided the 2.9 percent Medicare tax on about $26 million in earnings. Edwards, a Democrat later nominated to be vice president, was the sole shareholder in his S corporation. ‘Reputation and Skill’ The legislation would impose the Medicare tax and applicable Social Security taxes on such earnings when the company’s “principal asset” is the “reputation and skill” of less than four employees. Social Security taxes of 12.4 percent apply only to the first $106,800 of an individual’s earnings; Medicare taxes have no cap. The provision is projected by the congressional Joint Committee on Taxation to generate about $11.3 billion in revenue over a decade starting next year. Snowe and Enzi said the provision would go farther than stopping abuses by imposing levies on earnings that aren’t actually distributed to shareholders or partners in a company. “Retained earnings are the single biggest form of capital for small business and this provision would decimate that capital at a time when other sources remain difficult to access,” the senators said. According to the Internal Revenue Service , S corporations comprise about 62 percent of all corporations and have been the most commonly used business entity since 1997. In 2003, the last year for which data was available, about 3.3 million S corporation tax returns were filed, up 5.9 percent from the year before. Snowe and Enzi said they filed an amendment to strike the provision from the bill; under congressional budget rules, the provision would have to be replaced with another projected to raise the same amount of money. To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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U.S. Economy Payrolls Trail Forecasts in Sign Growth May Cool

June 4, 2010

By Shobhana Chandra June 4 (Bloomberg) — American companies hired fewer workers in May than forecast and workers dropped out of the labor force, indicating government support is still needed to spur economic growth. Private payrolls rose by 41,000, Labor Department figures showed today, trailing the 180,000 gain forecast by economists. Including government workers, employment rose by 431,000, boosted by a jump in hiring of temporary census workers. The jobless rate fell to 9.7 percent from 9.9 percent. Stocks fell and Treasuries surged as the report raised concern the world’s biggest economy was susceptible to shocks such as the European debt crisis. The figures may deal a blow to the Obama administration as the Congressional elections approach, and bolster forecasts the Federal Reserve will maintain its pledge to keep interest rates low for “an extended period.” “The labor market is extremely weak and has been in a mild recovery,” said Steven Wieting , managing director of economic and market analysis at Citigroup Global Markets Inc. in New York. “Policy makers need to be careful. No one should be taking stability for granted.” The Standard & Poor’s 500 Index dropped 2.2 percent to 1,078.9 at 12:27 p.m. in New York. The 10-year Treasury note rose, pushing the yield down to 3.21 percent from 3.37 percent late yesterday. Estimates of 82 economists surveyed by Bloomberg News for total payrolls ranged from 220,000 to 750,000. Last month’s gain followed a 290,000 increase in April employment. Discouraged Workers Economists surveyed also forecast the jobless rate would fall 9.8 percent. Unemployment reached a 26-year high of 10.1 percent in October. The decrease in joblessness last month reflected a 322,000 drop in the labor force as Americans grew discouraged over hiring prospects. Temporary census jobs accounted for 411,000 of the May increase in payrolls, leaving the ex-census figure at 20,000. The hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. “Job growth is going to be anemic,” said Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California. “It requires 150,000 to 200,000 jobs in order to reduce that unemployment rate, which is a key focus for the administration,” he said in an interview with Bloomberg Radio’s Tom Keene on “Bloomberg on the Economy.” Obama on Jobs President Barack Obama said the employment report showed the economy was moving in the right direction. “While we recognize that our recovery is still in its early stages, and that there are going to be ups and downs in the months ahead — things never go completely in a smooth line — this report is a sign that our economy is getting stronger by the day,” the president said while visiting a truck factory in Hyattsville, Maryland. Manufacturing remained a bright spot as factories increased payrolls by 29,000 in May, a fifth straight gain. The average number of hours worked, overtime, and earnings also climbed. Fed Chairman Ben S. Bernanke yesterday said joblessness is among the “important concerns” for the recovery. “One particularly difficult issue is the continued high rate of unemployment,” Bernanke said at a forum at the Chicago Fed’s Detroit office. “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole.” Cutting Staff Hewlett-Packard Co. , the world’s largest personal-computer maker based in Palo Alto, California, this week said it’ll slash about 3,000 jobs over several years. The slower pace of hiring came as colleges and universities began sending a wave of more than 1.6 million men and women with new bachelor’s degrees into the labor force. Analysts said the scramble for jobs may depress pay and handicap future career opportunities for the recent graduates. Not all the data today was bleak. Earnings per hour for those with jobs climbed 0.3 percent on average to $22.57 last month. Pay rose 1.9 percent from May 2009, up from a 1.8 percent increase in the year to April. “Today’s report may be the normal volatility seen in payroll jobs as the economy transitions from firing workers to hiring workers,” Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UJF Ltd. in New York, said in a note to clients. “The labor markets are still in recovery mode.” The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — decreased to 16.6 percent from 17.1 percent. The number of temporary workers increased 31,000, an eighth consecutive gain. Employment at temporary-help agencies often picks up before companies take on permanent staff. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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