Tag Archives: Noam Scheiber

You May Be A Gen-Xer If You Get Why This Art Accompanies This Post

Frank Newport at Gallup:

Republicans lead by 51% to 41% among registered voters in Gallup weekly tracking of 2010 congressional voting preferences. The 10-percentage-point lead is the GOP’s largest so far this year and is its largest in Gallup’s history of tracking the midterm generic ballot for Congress.

Chris Good at The Atlantic:

Gallup’s tracking goes back to 1950; the largest lead was 32 percentage points in favor of Democrats in July 1974, before Richard Nixon resigned over Watergate.

Are the new numbers evidence of a galvanized GOP base in already-conservative districts or a general Republicanizing of the country? Tough to know, but probably some (or a lot) of both

Allah Pundit:

To put this in perspective, until this month, the biggest lead the GOP had held in the history of Gallup’s polling was … five points. Why the eeyorism, then? Well, (a) Rasmussen has new generic ballot numbers out today too and the GOP’s actually lost a few points since last week, driving them down to their smallest lead since mid-July. Not sure how to square that with Gallup, especially since Ras polls likely voters and Gallup polls registered voters. The enthusiasm gap should mean a bigger spread among the former than the latter (and until today, it has), and if Gallup’s numbers are merely a reaction to last week’s dismal economic news, it’s surpassingly strange that the same reaction isn’t showing up in Rasmussen. Also, (b) Gallup’s generic-ballot polling has already produced one freaky outlier this summer. Granted, today’s numbers are more credible because they’re part of a trend, but read this Jay Cost piece about how bouncy Gallup’s numbers have historically been at times. Hmmmm.

Neil Stevens at Redstate:

This Gallup result is so large, I had to see what it shows in the Swingometer. As always, I boil it down to two party results. In 2008 we had a 56 D – 44 R split, and this Gallup simplifies to a 45 D – 55 R split. So the swing is from a D+12 to an R+10, or a 22 point swing.

So right now, that means Gallup of all polls, using Registered Voters, is projecting in the Swingometer a 60 seat Republican gain for a 238 R-197 D majority. The last time an election took the Democrats that low was the election of 1946, saith Wikipedia. Election night in 2004 took them to 202 for the second lowest.

Rasmussen today, by contrast, shows only a 20 point swing, a 57 seat Republican gain, and a 235 R – 200 D majority, still lower than an election since Truman has taken the House Democrats. If I then take the mean of these two and double weight the Rasmussen Likely Voter poll, I get R+58, the new projection.

Paul Mirengoff at Powerline:

The “enthusiasm gap” is even more pronounced. Gallup finds that Republicans are now twice as likely as Democrats to be “very” enthusiastic about voting come November, the largest such advantage of the year.

I’m obliged to add that anything can happen during the next two months. But more than any old thing will be required if the Democrats are to avoid a crushing defeat at the end of those two months.

John McCormack at The Weekly Standard

Doug Mataconis:

The biggest problem for the Democrats is that there seem to be very few things that can happen between now and Election Day that can reverse the Republican momentum. The latest round of economic reports seem to establish fairly clearly that the economy is likely to remain flat or depressed during that time period and I doubt we’ll be getting any good news out of the jobs report that will be released this coming Friday, and it is primarily the economy that is driving voter anger at this point in time. Outside of some massive scandal that hurts Republicans or an international crisis that causes the public to rally around the President, both of which are unlikely, the pattern we’re in now is likely to be the one we’re in on Election Day. That’s bad news if you’re a Democrat.

UPDATE: Nate Silver at NYT

Noam Scheiber at TNR

Jim Antle at The American Spectator

Hugh Hewitt

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Filed under Politics

Timmy And Lizzy, Having A Tizzy

John Hudson at The Atlantic with the round-up

Shahien Nasiripour at The Huffington Post:

Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner’s views.

The financial reform bill passed by the Senate on Thursday mandates the creation of a new federal entity charged with protecting consumers from predatory lenders.

But if Geithner has his way, the most prominent advocate for creating the agency may not be picked to lead it.

Warren, a professor at Harvard Law School whose 2007 journal article advocating the creation of such an agency inspired policymakers to enact it into law, has rocketed to prominence since the onset of the financial crisis as one of the leading reform advocates fighting on behalf of American taxpayers.

Warren has been an aggressive proponent for the bureau in public and behind the scenes, working regularly with President Barack Obama’s top advisers and the Democratic leadership in Congress. Since 2008, she has overseen the Congressional Oversight Panel, a bailout watchdog created to keep tabs on how two administrations spent hundreds of billions of taxpayer dollars to bail out Wall Street while struggling to keep distressed homeowners out of foreclosure and small businesses from collapsing.

Yet while her work on behalf of a federal unit designed solely to protect borrowers from abusive lenders has been embraced by the administration, Warren’s role as a bailout watchdog led to strained relations with the agency her panel has taken to task with brutal reports every month since Obama took office: Geithner’s Treasury Department.

It’s no secret the watchdog and the Treasury Secretary have had a tenuous relationship. Geithner’s critics have enjoyed watching Warren question him during his four appearances before her panel. Her tough, probing questions on the Wall Street bailout and his role in it — often delivered with a smile — are featured on YouTube. One video is headlined “Elizabeth Warren Makes Timmy Geithner Squirm.”

Simon Johnson at Baseline Scenario:

With his track record of survival, Geithner and his team apparently feel they can push hard against Elizabeth Warren and give the new consumer protection job to someone closer to their philosophy – which is much more sympathetic to the banking industry.

This would be a bad mistake – trying the patience of already exasperated Congressional Democrats.  If the Obama administration can’t even complete the deal they implicitly agreed with Senators over the past months, this will set of a firestorm of protest within the party (and with anyone else who is paying attention).

Financial “reform” is already very weak.  If Secretary Geithner gets his way on consumers protection, pretty much all of the Democrats efforts vis-à-vis the financial sector’s treatment of customers have been for naught.

Tim Geithner is sometimes compared to Talleyrand, the French statesman who served the Revolution, Napoleon, and the restored Bourbons – opportunistic and distrusted, but often useful and a great survivor with a brilliant personal career.  In the end, of course, no one – including Talleyrand – proves indispensible.  And everyone of this sort eventually pushes their luck too far.

If the Democratic leadership really wants to win in the November elections, they should think very hard about the further consequences of Mr. Geithner.

Dean Baker at TPM:

Undoubtedly her actions made many people in positions of power uncomfortable. But, that is exactly what we need in order for the new consumer protection agency to be effective.

The Federal Reserve Board already had the power and the responsibility to do the job that the new consumer board has been assigned. The problem was that Ben Bernanke, Alan Greenspan, and their colleagues on the Fed board (with some notable exceptions) never took this responsibility seriously. As a result, consumer protection was a joke.

Shifting the responsibility to a new board does not by itself guarantee that consumer protection in financial matters will now be treated seriously. Just ask the folks at the Mineral and Management Service about their oversight of deep-sea drilling.

Ensuring that the new board carries through its responsibilities in the way that is intended will require a leader with integrity, intelligence and independence. Elizabeth Warren clearly fits that description. Selecting anyone else will be an insult not only to her, but to all the individuals and organizations who worked so hard to bring the Consumer Financial Protection Board into existence.

Felix Salmon:

Shahien Nasiripour says, plausibly enough, that Tim Geithner is opposed to tapping Elizabeth Warren for the job, despite the fact that she’s the obvious choice. I hope he doesn’t get his way. The bureau would never have come into being without Warren pushing it hard; it’s only fair she gets a chance to run it at inception, and shape the way it does business. Even if she has been harsh in her public questioning of Geithner.

David Dayen at Firedoglake:

Boy, and bloggers are called the immature ones. Geithner gets his fee-fees hurt because Warren dares to tell the truth about the Wall Street cartel and the woefully inadequate job Treasury has done, particularly on the foreclosure crisis, and so that makes her unacceptable for a position she literally dreamed up. I think it’s time to end the fiction that the Treasury Department is in any way interested in fundamentally changing the balance of power between Wall Street and consumers. If this report is correct, Geithner is using his power to block someone who would actually make Wall Street nervous from having a position of authority.

At least one progressive group is already fighting back. The Progressive Change Campaign Committee has blasted an email to their supporters demanding that Warren be named the head of the CFPB.

As a Harvard professor, her credentials are impeccable. And she was the one who came up with the idea for the Consumer Financial Protection Bureau — perhaps the best piece of this bill — in the first place.

In short, Warren is perfect for the position and most financial insiders have just assumed she would get it. That’s why it’s so outrageous that Geithner — a longtime Wall Street insider — would attempt to sabotage her appointment.

I will be in a position to gather more information about this in the near future, not only from Treasury, but from Elizabeth Warren. It turns out I’m on a panel with her next week at Netroots Nation. We’ll talk about the Forgotten Foreclosure Crisis along with Sen. Jeff Merkley and the Huffington Post’s Ryan Grim. So if you’re in Vegas, please come out as I speak with the next head of the Consumer Financial Protection Bureau – unless Timmeh has something to say about it.

Matthew Yglesias:

I wouldn’t put a ton of stock in a story based on “a source with knowledge of Geithner’s views” but the two of them have clashed in the past so this could be the case. For example, speaking on the record earlier today Assistant Treasury Secretary for Financial Institutions Michael Barr said Narisipour’s report was wrong, and that he and Geithner both regard her as “exceptionally well-qualified.”

I’m firmly of the view that nobody is indispensable ever, and Warren is no exception to that, but there’s a good prima facie case for her. That’s because good agencies not only need good people at the top, they need good people in the middle and the bottom too. Once an agency’s been up and running for a while, this is largely a question of lock-in. Effective, high-prestige public agencies (the United States Navy, the Federal Reserve) attract a lot of motivated applicants and thus get on a self-reenforcing path of effective personnel and high prestige. But when you start something new, everything is wide open. Launching the agency with someone like Warren—a reasonably well-known high-status individual whose status among people interested in consumer financial protection is very high—will draw other committed people into the new bureau.

Paul Krugman:

There’s also a political aspect. The Obama administration suffers from the perception that it’s been too much in the pocket of Wall Street — partly because there’s at least a grain of truth to the accusation. Appointing a prominent pro-consumer crusader would have to help repair the image, while appointing somebody unknown to the public, especially when expectations are running high, would hurt.

And bear in mind that Warren really is a pioneering expert on household debt and financial distress, who has also shown an ability to work effectively in an official position. Against that, whatever personal quarrels she may or may not have had shouldn’t count at all.

Brian Beutler at TPM:

On a conference call with reporters this afternoon, President Obama’s top political adviser David Axelrod sought to calm the waters. “Elizabeth is certainly a candidate to lead it,” he said.

That sentiment was echoed this morning by Michael Barr, Assistant Treasury Secretary for Financial Institutions. “I don’t know where that came from,” he said on a conference call. “She’s been working closely with me and Secretary Geithner for a year and half to push for this consumer protection bureau. I believe and Secretary Geithner believes that she’s exceptionally well-qualified to run it.”

Geithner and Warren haven’t exactly had a warm public relationship, so the news that he has reservations, and may be trying to block her, is no surprise. Just ask Sheila Bair. But this puts the White House in a tricky spot now if it turns out Obama does not nominate her.

More Simon Johnson at Baseline Scenario:

It’s one thing to block Elizabeth Warren from heading the new Consumer Financial Protection Bureau.

It’s quite another thing to deny in public, for the record, that any such blocking is going on (e.g., see this report; Michael Barr apparently said something quite similar today).

There is a strong groundswell of opinion on this issue from the left – see the BoldProgressives petition.  But the center also feels strongly that, given everything Treasury has said and done over the past few months, it would be a complete travesty not to put the strongest possible regulator in change of protecting consumers.  (See Ted Kaufman on the NYT’s DealBook, giving appropriate credit to the SEC, and apply the same points to broader customer issues going forward.)

This can now go only one of two ways.

  1. Elizabeth Warren gets the job.  Bridges are mended and the White House regains some political capital.  Secretary Geithner is weakened slightly but he’ll recover.
  2. Someone else gets the job, despite Treasury’s claims that Elizabeth Warren was not blocked.  The deception in this scenario would be nauseating – and completely blatant.  “Everyone was considered on their merits” and “the best candidate won” will convince who exactly?

Despite the growing public reaction, outcome #2 is the most likely and the White House needs to understand this, plain and clear – there will be complete and utter revulsion at its handling of financial regulatory reform both on this specific issue and much more broadly.  The administration’s position in this area is already weak, its achievements remain minimal, its speaking points are lame, and the patience of even well-inclined people is wearing thin.

Failing to appoint Elizabeth Warren would be the straw that breaks the camel’s back.  It will go down in the history books as a turning point – downwards – for this administration.

UPDATE: John Talbott at HuffPo

Jim Newell at Gawker

UPDATE #2: Jonathan Karl and Matthew Jaffe at ABC News

Felix Salmon

Mike Konczal

Joseph Lawler at The American Spectator

UPDATE #3: Pat Garofalo at Think Progress

UPDATE #4: Noam Scheiber at TNR


Filed under Economics, Legislation Pending, Political Figures, The Crisis

Your Daily FinReg Centerfold

Brian Beutler at Talking Points Memo:

With the Wall Street reform legislation agreed to by House and Senate negotiators now in serious doubt in the Senate, what happens if the final bill can’t muster the votes? At his weekly press availability this morning, House Majority Leader Steny Hoyer hinted that they may have to make some changes.

“We’re trying to work with the Senate to ensure that we both take up a version that does in fact have 60 votes,” Hoyer said.

But the conference report, passed late last week, can not be amended on the House or Senate floors. It’s an up-or-down, yes-or-no proposition. If they need a new ‘version’ that has 60 votes to overcome a filibuster, they’d have to reconvene the conference committee, strip the language that offends Sen. Scott Brown (R-MA) and Sen. Susan Collins (R-ME) and try again.

Kevin Drum:

In the wake of a historic economic collapse caused largely by a financial industry allowed to run rampant, Sen. Russ Feingold (D–Wisc.) has decided to vote in favor of doing nothing at all to address this:

As I have indicated for some time now, my test for the financial regulatory reform bill is whether it will prevent another crisis. The conference committee’s proposal fails that test and for that reason I will not vote to advance it. During debate on the bill, I supported several efforts to break up ‘too big to fail’ Wall Street banks and restore the proven safeguards established after the Great Depression separating Main Street banks from big Wall Street firms, among other issues. Unfortunately, these crucial reforms were rejected. While there are some positive provisions in the final measure, the lack of strong reforms is clear confirmation that Wall Street lobbyists and their allies in Washington continue to wield significant influence on the process.

Can I vent for a minute? I know Feingold is proud of his inconoclastic reputation. I know this bill doesn’t do as much as he (or I) would like. I know the financial industry, as he says, continues to have way too much clout on Capitol Hill.

But seriously: WTF? This is the final report of a conference committee. There’s no more negotiation. It’s an up-or-down vote and there isn’t going to be a second chance at this. You either vote for this bill, which has plenty of good provisions even if doesn’t break up all the big banks, or else you vote for the status quo. That’s it. That’s the choice. It’s not a game. It’s not a time for Feingold to worry about his reputation for independence. It’s a time to make a decision between actively supporting something good and actively supporting something bad. And Feingold has decided to actively support something bad.

Scott Brown, the junior Senator from Mass:

Dear Chairman Dodd and Chairman Frank,

I am writing you to express my strong opposition to the $19 billion bank tax that was included in the financial reform bill during the conference committee. This tax was not in the Senate version of the bill, which I supported. If the final version of this bill contains these higher taxes, I will not support it.

It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis.  While some will try to argue this isn’t a tax, this new provision takes real money away from the economy, making it unavailable for lending on Main Street, and gives it to Washington. That sounds like a tax to me.

I have always strongly opposed a bank tax because, as the non-partisan CBO has said, costs would be passed onto the millions of American consumers and small businesses who rely on major U.S. financial institutions for their checking, ATM, loans or other services.  This tax will be paid by consumers who will have to pay higher fees and the small businesses that won’t get the funding they need to invest and create jobs.

Imposing this new tax is the wrong option. Our economy is still struggling. It is wrong to impose higher taxes and ignore the impact it will have on our economy without considering other ways we might offset the costs of the measure.  I am asking that the conference committee find a way to offset the cost of the bill by cutting unnecessary federal spending. There are hundreds of billions in unspent federal funds sitting around, some authorized years ago for long-dead initiatives. Congress needs to start to looking there first, and I stand ready to help.


Senator Scott P. Brown

John Carney at CNBC:

Democrats on Tuesday planned to strip out a controversial tax from their landmark financial reform bill in order to win the swing votes needed to pass it through Congress.

With crucial Republican moderates threatening to withdraw their support, Democrats were weighing alternative ways to fund the most sweeping rewrite of the Wall Street rulebook since the 1930s.

Though a supposedly final version of the bill had been hammered out last week, Democrats in charge of the process called a fresh negotiating session, which got under way shortly after 5 p.m. EDT Tuesday.

Democratic lawmakers and aides said they planned to remove a $17.9 billion tax on large financial institutions. Instead, they would cover most of the bill’s costs by shutting down a $700 billion bank-bailout program.

“I haven’t talked to everybody, but I gather from a number of people they like this option,” said Democratic Senator Christopher Dodd, one of the lawmakers in charge of the bill.

The bill had been expected to pass both chambers of Congress this week in time for President  Obama to sign it into law by July 4. But supporters have been forced to scramble for votes in the Senate, putting that goal in jeopardy.

Analysts said while that timetable may slip, the bill was still likely to become law.

“We believe that this legislation will pass, timing and the bank tax remain the final question marks,” wrote FBR Capital Markets analyst Edward Mills in a research note.

Jay Newton-Small at Time:

Senate Banking Committee Chairman Chris Dodd stood an hour ago in the Senator’s Retiring Room off of the Senate floor in an intense conversation with Massachusetts Senator Scott Brown – one of surely many they will have today. Dodd is trying to get Brown, one of four Republicans who voted for the Senate version of financial regulatory reform, to pledge his support for final passage. House and Senate negotiators last week worked out a deal to combine the two measures only to find that Brown couldn’t support $18+ billion in new bank fees. To complicate matters, Democrats are now down a vote due to the untimely death of Senator Robert Byrd, a West Virginia Democrat.

Dodd, a Connecticut Democrat, and House Financial Service Chairman Barney Frank are planning on taking the unusual step of reopening the conference committee this afternoon. Lucky for them it wasn’t formally closed or reopening it would’ve taken votes from both chambers of Congress. They have been negotiating with the four Republicans – Brown, Maine Senators Olympia Snowe Susan Collins and Iowa’s Chuck Grassley — on new offsets for the $18+ billion. Dodd says that 90% of the $18+ billion would now be paid for by the immediate end of TARP, the unpopular bank bailout fund due to expire October 3. The additional offset would come from raising fees the banks pay to the Federal Deposit Insurance Corporation, exempting all small banks under $10 billion capitalization (Dodd says he’s spoke to Sheila Bair on this and she’s fine with it). Some Republicans still have reservations that such a move, though, wouldn’t prompt the banks to pass the cost on to consumers. “Repealing TARP definitely appeals to me,” says Snowe, who met with Dodd in her office last night and again this morning.  “At this point other issues are not related to the TARP part, we’re still looking at how you replace those fees. So things are still in motion here, there are a lot of conservations developing.”

Brown, emerging from his meeting with Dodd, says he’s waiting to see the final product and hasn’t made any decisions yet. Brown sent Dodd and Frank a letter this morning announcing his opposition to the $18+ billion in fees, prompting today’s dramatics. Collins told reporters she was pleased with her meetings with Dodd but that she also had made no final decision. Grassley was nowhere to be found. “I gather there were a number of people who were uneasy with the earlier pay-for who like this alternative and so the present plan is to probably reconvene the conference this afternoon,” Dodd said, heading into a meeting in Senate Majority Leader Harry Reid’s offices. If all four Republicans sign on, Dems should have enough votes to pass the Senate as they race to finish the legislation by the end of the week.

Annie Lowrey at The Washington Independent:

Rather than charging the hedge funds and big banks considered most responsible for the financial crisis a reasonable fee for implementation, the conference committee will settle for ending a government stability program and spreading the pain around to all federally insured banks — including small community-focused banks — to satisfy the demands of one Republican. So it goes in Washington.

Felix Salmon:

It would be a fiasco of tragic proportions if the banks managed to remove these taxes from the final bill, essentially absolving themselves from cleaning up after their own mess. The arguments against the taxes are weak indeed: either you simply oppose all taxes on principle (which seems to be the Scott Brown stance, and which is fiscally disastrous), or else you’re forced into John Carney’s corner.

Carney is worried that we don’t know exactly where the tax will be applied — but that’s a feature, not a bug. Setting up the tax in great deal ex ante is essentially just asking banks to spend millions of dollars on tax consultants who can help them skirt the new levies. And as the risks in the system evolve and change, so to should the way that they’re taxed. It’s right and proper that the newly created Council for Financial Stability will be charged with taxing systemic risk, rather than having a bunch of politicians try to do so at the beginning and then watch as the banks and other financial institutions nimbly sidestep the new taxes.

An increase in the FDIC premium would be a gift on a platter to banks like Goldman Sachs and Morgan Stanley which don’t have insured deposits — not to mention non-bank players like Citadel which are systemically very important. I’m unclear on what exactly this Republican “procedural hurdle” is — I thought that after reconciliation, you just needed a simple majority to pass a bill. But I’m getting very annoyed about it.

UPDATE: Russell Berman at The Hill

UPDATE #2: Eric Zimmermann at The Hill

Noam Scheiber at TNR

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Filed under Economics, Legislation Pending, The Crisis

Straight Outta Conference

Daniel Indiviglio at The Atlantic:

In a marathon meeting lasting nearly 20 hours, Congress’ conference committee finalized the new financial regulation bill at 5:39am ET on Friday. Next, the merged bill goes back to both chambers for their individual votes. The rushed process was completed on-time early Friday morning so that President Obama could explain the new rules Congress will impose to the G-20 this weekend in Toronto. Assuming the votes go smoothly, the bill should pass in both chambers by July 4th. Here are some of the major highlights from the night and morning’s proceedings:

Volcker Rule

A watered-down ban of proprietary trading, also known as the Volcker Rule, passed. The final version of the rule would allow banks to participate in private equity and hedge funds up to 3% of their tier 1 capital. They could only, however, have up to 3% ownership of any private equity or hedge fund.

A conflict-of-interest provision was included in this amendment, which was inspired by the Goldman-SEC case. No market-maker can engage in any transaction that could result in a conflict-of-interest with any real or synthetic asset-backed security it has acted as underwriter, placement agent, initial purchaser, or sponsor for in the past year.

House Republicans were worried about the U.S. unilaterally imposing the Volcker Rule without similar measures taken by other nations. The fear was that U.S. competitiveness could be harmed if other nations don’t adopt similar regulation. They consequently offered an amendment that would have prevented the Volcker Rule from being effective until at least a majority of the G-20 had agreed to adopt a similar rule. The amendment failed.

Sen. Kanjorski (D-PA) also was bothered by the use of tier 1 capital instead of tangible common equity (TCE). The initial version of the rule would have used TCE instead of tier 1 capital. He said that tier 1 allowed too much flexibility for banks, as he indicated that it provided approximately 40% more investment in private equity and hedge funds. His amendment was rejected.


The big question here was Senator Lincoln’s (D-AR) so-called spin-of provision. It would require banks to put their swaps desks in a separately capitalized subsidiary. The Senate’s offer included a major change. Certain types of derivatives could be retained, while others would need to be put in subsidiaries, as follows:

  • Derivatives can be retained related to: interest rate swaps, foreign exchange, credit default swaps referencing investment grade entities, gold and silver, and hedging for the banks’ own risk
  • Derivatives must be put in an affiliate related to: cleared and uncleared commodities, energies and metals (except gold and silver), agriculture, credit default swaps not referencing investment grade entities, all equities, and any uncleared credit default swaps

The movie futures exchange was also forbidden. It was just approved by the Commodity Futures Trading Commission earlier this month. Its life will be short-lived.

Ezra Klein:

The big disappointment is that capital requirements, which I think to be the most important part of the bill, didn’t end up in the final legislation. Instead, that’s left to regulators, although it’s hard to imagine that anything in the bill will stop regulators from getting caught up in bubble-mania. Still, this is an ambitious, thoughtful piece of legislation that addresses some of the system’s worst failings (like the unregulated derivatives market) and adds a raft of protections. The work of financial regulation is trying to draw out the time between the last crisis and the next one, and this bill does seem likely to do that.

Richard Fernandez at Pajamas Media:

Since the central goal of the bill was to manage risk one might ask, ‘where does the risk go?’ Public policy analysts will have to spend hours is figuring out who ultimately holds what in the 2,000 page bill. Financial risk cannot be legislated away. Like energy, once in existence risk cannot be destroyed. It can only be moved around; assumed by someone. When it assumed for a fee the risk transfer is called insurance. When it is assumed by the taxpayer the result is something like Freddie Mac and Fannie Mae. Yet public or private the it remains in the system for so long as the transactions which gave rise to it are allowed. It is the distribution of risks that is affected by the bill. In that sense the spin-offs on derivatives trading mandated by Blanche Lincoln do not reduce total risk within the system. They simply prohibit banks from assuming it, assuming they do not simply reallow under other color through loopholes. Shara Tibken at the Wall Street Journal reports that that banks are expected to adapt happily now that the obligatory theatrics are over.

Radley Balko at Reason:

“It’s a great moment. I’m proud to have been here. No one will know until this is actually in place how it works. But we believe we’ve done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done.”

That’s a “teary” Sen. Chris Dodd (D-Conn.), on the financial overhaul bill assembled by leaders in both houses this week. So Dodd, the chair of the committee with jurisdiction over the bill, has no idea how the bill work. Which also means he has no idea if it will work. Which also means he has no idea if the bill will do more harm than good. Nonetheless, he’s certain it was needed, and is proud to have helped make it happen.

Noam Scheiber at TNR:

A final, macro thought on where we go from here: Many hands have been wrung (including my own at times) about the fact that financial bureaucrats will have so much influence over the shape of the legislation. Even if you trust Team Obama (as I do), you have to worry about their possible successors under a GOP administration bent on waging anti-regulatory jihad. In fact, you don’t even need to imagine that to be anxious. History shows that even otherwise sober-minded officials are just as susceptible to bubble psychology as the rest of us.

But if there are ways that financial regulation is likely to weaken over time, there are other ways that it’s likely to strengthen. For example, the Democratic leadership was finally forced to exempt auto dealers from the new consumer regulatory agency late last night—Barney Frank, the lead House negotiator, conceded that they just didn’t have the votes to do otherwise. But that hardly strikes me as the final word on regulating auto loans. To the contrary, now that we’ve taken the big step of creating a consumer agency, it strikes me as relatively easy to expand its purview. And I’m guessing that the next time we hear about a sympathetic military family getting screwed by a deceptive auto loan, that’s what’s going to happen. So this bill really is just the beginning in more ways than one.

Daniel Foster at The Corner:

Prediction: if you thought financial instruments were complex before, wait until you get a load of the vehicles Wall Street will construct to get around these rules.

In addition, banks will have two years to spin-off their derivatives trading, and can retain the operations under independently capitalized affiliates. This latter might do some good if it keeps the riskiest products off the balance sheets of the biggest banks — effectively creating a good bank / bad bank situation in advance, instead of trying to do it on a sinking ship, as Lehman tried in September of 2008.

Steve Benen:

The timing is especially helpful for President Obama, who leaves today for Canada for a G20 meeting, and who wanted to be able to tell global leaders that the United States is poised to complete its work on financial regulatory reform. Now, he’ll be able to do just that, and Obama spoke briefly to the press this morning to herald the legislative breakthrough, most notably the new consumer protection agency, and calling the larger package the “toughest” industry regulations in generations.

The NYT‘s report is worth reading in full, to get a sense of the changes that were made through the negotiations, most notably to the Volcker Rule. Note that while intense industry lobbying influenced the process, and produced “some specific exceptions to new regulations,” by and large “the bill’s financial regulations not only remained strong but in some cases gained strength.”

The House and Senate are expected to bring the conference committee bill to the floor next week. Senate Republicans will very likely launch a filibuster — they have no shame — but leaders are confident the legislation will pass.

And in the larger context, this will add to an impressive list of historic accomplishments spanning President Obama’s first 18 months in office, a list that will now include Wall Street reform, health care reform, student loan reform, economic recovery, Lilly Ledbetter Fair Pay Act, expanded civil rights protections, expanded stem-cell research, new regulation of the credit card industry, new regulation of the tobacco industry, a national service bill, and the most sweeping land-protection act in 15 years, among other things.

Taegan Goddard noted this morning, “Not since FDR has a president done so much to transform the country.” That’s not a hyperbolic observation in the slightest.

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The End Of Orszagmania Is Nigh

Heather Horn at The Atlantic with the round-up

Obama budget director Peter Orszag–he of the power engagement, love child, and famously baffling sex appeal–is resigning. Set to leave in July, according to The New York Times, he would be “the first official to leave the Obama cabinet.” Here’s the roundup of regulars on what that means:

Why Now? Because It’s Time “Eighteen months is approximately the median amount of time for the OMB director position,” notes ABC’s Jake Tapper. Furthermore, “Orszag was director of the Congressional Budget Office for two years before becoming OMB in January 2009.”

Noam Scheiber at TNR:

If nothing else, the press reports stress that Obama wanted Orszag to stick around, something I’ve heard independently. To the extent that members of the economic team hold somewhat different policy views, I get the impression the president likes it that way, as the administration official quoted above suggests.

As I understand it, the reason Orszag has decided to step aside now is that the upside to sticking around just wasn’t that great after he’d successfully overseen two budget cycles and helped manage a once-in-a-generation healthcare reform effort. (To say nothing of that stimulus bill…) What you have to understand about Orszag is that he’s an extremely bright guy who’s excited by intellectual, as opposed to, say, managerial, challenges. What you have to understand about being OMB director is that it’s an incredibly taxing job—there’s a huge amount of work that has to get done in a short period of time, year in and year out. Put that together and what you had was a grueling job that Orszag found pretty exhilarating when the learning curve was steep, and which became a little less exhilarating but no less grueling once the learning curve flattened out. Between that dynamic and his impending wedding in September, which roughly coincides with the start of the new budget season, it makes perfect sense for him to hang his slide rule elsewhere.

Update: I shouldn’t minimize the role of Orszag’s upcoming marriage. He is known to be very devoted to his fiancee, which makes the decision not to sign on for another grueling year all the more understandable.

Alan Mascarenhas at Newsweek:

While Orszag is not exactly a household name, he is something of a celebrity inside the D.C. Beltway (and, among other things, surely the first ever OMB chief to inspire his own fan site; evocatively titled Orszagasm with the tagline “Putting the OMG back into the OMB”). Rumors of his departure—which would represent the first from President Obama’s cabinet—have been building for some time. He is getting married in September and is reportedly keen to leave enough time for his successor to organize President Obama’s next budget in February.

Orszag’s office has not publicly confirmed the reports. “Peter’s focused on his work, not on Washington speculation,” said his spokesman, Kenneth Baer.

Christopher Beam at Slate:

Peter Orszag became famous for making health care cost control sexy. His replacement will have an even harder task: Doing the same for deficit reduction.

Reducing the deficit is the Washington equivalent of eating one’s vegetables. It’s preached mainly by stern fogies, who don’t make it sound very appetizing. Whoever replaces Orszag as director of the Office of Management and Budget—the top names floated so far are Clinton administration vets Laura Tyson and Gene Sperling—will have to change that.

Derek Thompson at The Atlantic:

The two pillars of Orszag’s legacy are the massive $800 billion stimulus bill passed in early 2009 and the health care reform bill passed about a year later. It’s fair to say that both bills were policy successes and popular failures. The Recovery Act was the macroeconomic equivalent of throwing everything but the kitchen sink at the recession. It included hundreds of billions of dollars in tax cuts for working families, extended unemployment benefits, unburdened the states of massive Medicaid and education responsibilities, and seeded infrastructure projects across the country.

The Recovery Act might have stimulated the economy — or at least built a floor to the downturn — but it did not stimulate much gratefulness. Poll after poll in the last year and a half demonstrates consistent pessimism that the stimulus did much to create jobs. This is easily explained: the administration said that unemployment wouldn’t rise above 9 percent after the bill passed. Instead it rose above 10 percent since the recession was deeper than predicted. That looks like failure, even if it’s relative success.

Orszag’s second achievement is another kitchen-sink bill and another liberal policy success that failed to inspire public approval. Health care reform created a new entitlement for tens of millions of uninsured Americans, planned cuts to Medicare and threw a smorgasbord of missiles at the real long-term monster of medical inflation, including: comparative effectiveness research, a Medicare advisory counsel, an innovation center and more cost-cutting experiments. But once again, folks aren’t applauding. In a June Gallup poll, 50 percent of respondents said they wanted health care partially or completely repealed.

James Pethokoukis:

But there is little doubt Orszag will depart as the most consequential Office of Management and Budget director since the notorious David Stockman nearly torpedoed Reaganomics in the early 1980s by calling supply-side economics a sham. In hindsight, of course, Reaganomics looks pretty good, including 17 million net new jobs and a collapse in inflation.

But Orszag was no whistle-blower of some perceived fiscal sleight-of-hand. Instead, it was just the opposite. He was a facilitator and enabler, providing the intellectual firepower and energy behind Obama’s drive for healthcare reform. Orszag made the case to the president that reducing healthcare costs was an important element to slashing the long-term budget deficit. More importantly, he persuaded Obama the U.S. healthcare system was so inefficient, overall spending could be restrained while also providing near-universal health insurance coverage. In effect, “bending the curve” was a free lunch. Or at least close enough for government work.

It was an audacious claim, mostly based on a single controversial academic study. Republicans never bought into the theory, and neither did Orszag’s successor at the Congressional Budget Office, Uncle Sam’s fiscal scorekeeper. In the end, Obama was forced to cut future Medicare spending and raise taxes to make the numbers balance out — at least on paper. Few Washington observers think those cuts will happen, meaning that the budget deficit could explode if Orszag’s novel theories don’t pan out. And even if the cuts occur, many budget hawks were counting on them to make Medicare sustainable over the long-term, not create a new entitlement.

Too bad Orszag didn’t use his considerable political skills – Larry Summers was supposedly warned to be careful of the guy “wearing the cowboy boots and bad toupee” – to make the case for entitlement reform first. In that regard, Orszag’s legacy is uncertain at best.

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Filed under Political Figures

A Bill Either Too Big Or Not Big Enough Doesn’t Fail

Edmund Andrews:

A few hours ago, the Senate did something truly amazing: it clobbered Wall Street and the banking industry, defying armies of  overpaid lobbyists and passing genuine reforms for our run-amok financial system. Voting 59 to 39, the Senate passed Senator Chris Dodd’s sprawling bill to clamp down on the Wall Street excesses that nearly destroyed capitalism.

Here is my initial quick take in the Fiscal Times.    But let me amplify a bit here.   For all its compromises and omissions and special exceptions, this is a strong bill that will make life a lot less free-wheeling and lucrative for the big banks and, with a little perserverence, a lot safer for consumers and  the economy as a whole.  This is a victory for the good guys.

Go ahead and call me naive.   Critics of the banks like Simon Johnson and James Kwak of Baseline Scenario will undoubtedly complain that the Senate capitulated to Wall Street because it didn’t try to break up the giant banks or properly clip their wings in areas like derivatives.   And to some degree, Johnson and Kwak are right.   One of the underlying causes of the crisis was that institutions like Goldman Sachs and Citigroup had become too big to fail, and many of them took reckless risks because they assumed on some level that the government would bail them out.   Neither the Senate nor House bills would really reduce the number of too-big-to-fail institutions.   Instead, they create a new “resolution” mechanism to shut them down in an orderly way if they do fail.

But before all the armchair pundits begin carping and tut-tutting, let us first appreciate how much the Senate bill actually does accomplish and how difficult it is to do anything at all when the full force of the financial industry is against you.  Remember also that Dodd and the other Democrats had to contend with the hardball intransigence of the Republican Party, whose leaders tried to obstruct or gut just about every meaningful reform in the bill without proposing any of their own.   This was not, repeat not, a philosphical disagreement between those who believe in the wisdom of government regulation and those who believe in the wisdom of free markets.   However sincere Alabama’s Dick Shelby might be in his fear of overbearing government, this fight was about denying Demorats a “victory.”   It was all straight from Mitch McConnell’s playbook for political success: just say no, no, a thousand times no — no matter how venal it makes you look.

Against that backdrop, it’s astonishing that the Senate bill actually became stronger as the process dragged on.    The proposed consumer financial protection agency is stronger and I believe more independent than it would have been in the original Senate bill (more on that in a moment).    The multi-trillion market in financial derivatives, which is almost unregulated right now, would for the most part have to be take place on exchanges or at least through clearinghouses — either of which require greater transparency and more pfront capital by the players.     Banks, whose deposits are federally insured,  would be prohibited from trading derivatives.  And as an added surprise bonus, from none other that freshman Senator Al Franken, the bill includes a very smart reform to fix the corrupt busines model of credit-rating agencies.

Ryan Avent at Free Exchange at The Economist:

My view is that it’s a nice start, but it’s important to keep in mind the limitations of the new rules and that more is needed. Yesterday, President Obama said of the bill:

There will be no more taxpayer-funded bailouts–period. If a large financial institution should ever fail, we will have the tools to wind it down without endangering the broader economy. And there will be new rules to prevent financial institutions from becoming “too big to fail” in the first place, so that we don’t have another AIG.

This simply isn’t true. There have always been taxpayer-funded bail-outs and there will continue to be taxpayer-funded bail-outs. While resolution authority will allow for some large, complex banks to be wound up in the event they become insolvent, there are legitimate questions over whether or how to apply it in cases where there are, for example, institutions with significant overseas components. Whether or not the bill would prevent the growth of new too-big-to-fail firms, it does almost nothing to shrink the many banks that already fall into that category. The New Republic‘s Noam Scheiber says there are some measures in the bill that will disadvantage big banks:

[T]he upshot of financial reform will have been to make it costlier to be a big bank relative to being a small or medium-sized bank—which is to say, it has effectively taxed bigness. That’s because the legislation imposes a handful of new mandates and regulations—like oversight by a soon-to-be-established consumer financial protection agency, as well as limits on fees for debit-card transactions—from which small and medium-sized banks are exempt. Other reforms—such as a bill Congress passed last year to limit hidden credit-card fees and make statements more transparent, and new restrictions on trading derivatives—would disproportionately dent profits at megabanks. These banks tend to have far bigger credit card operations, and are the only bona fide derivatives brokers around.

That’s something, I suppose, but not very much. The big key to bank profits is leverage, and too-big-to-fail banks are better able to lever up thanks to the implicit guarantee associated with their size. It will take tougher measures—meaningful leverage limits or a tax on bank liabilities—to chip away at too-big-to-fail status.

But perhaps tougher measures will be forthcoming. Wall Street didn’t anticipate a regulatory bill this strong, and Congress probably isn’t done tweaking financial rules yet. This bill would not have prevented the crisis that reached a head in 2008, but it does chip away at the factors which helped make that crisis possible. That’s a good start.

Noam Scheiber at The New Republic:

The gist of the administration’s attack on the too-big-to-fail (TBTF) problem is a provision known as “resolution authority.” Under the status quo, the government basically has two choices for dealing with a major financial firm on the brink of collapse: It can get out of the way and hope for the best, as it did to disastrous effect with Lehman Brothers. Or the Federal Reserve can float the company a massive loan, as in the case of AIG.

The idea behind resolution authority is to avoid these lousy choices. Under the new law, the government would be able seize the wobbly firm, fire its executives, and fund its operations until it could sell them off in pieces. The proceeds from these sales would pay the government back; whatever was left would go to bondholders, who would presumably suffer some losses. The shareholders—the people who own common stock—would get wiped out entirely. (If the proceeds weren’t enough to repay the government, it would recoup the rest by levying a fee on the industry.) This is basically a scaled up (and stretched out) version of the way the FDIC handles smaller-bank failures.

Long story short, resolution authority is unquestionably an improvement over the status quo. The biggest reason is that the prospect of losses for bondholders mitigates the most pernicious consequence of TBTF: moral hazard. That is, because people who lend money to megabanks assume the government will make them whole if the bank collapses, the lenders have little incentive to rein in excessive risk-taking by the bank’s managers. In fact, they actually encourage it by under-pricing their loans. The threat of being “resolved” by the government should change that calculus.

That’s how it’s supposed to work, in any case. In practice, there are a number of complications. For one thing, it’s not clear that bondholders actually will suffer losses in the end, at least not all or even most of them. The government isn’t likely to impose losses when it first takes over a failing megabank because doing so in the middle of a financial crisis—and you’re almost by definition in a crisis if a megabank is failing—risks accelerating the panic. (Investors might refuse to roll over their loans to other troubled companies for fear of suffering similar losses.) And if the government waits to impose losses until it’s done liquidating the company—a process that could stretch for years—the short-term bondholders will have long since taken their money and run.* So, at the very least, the people who lend short-term may count on being bailed out, which encourages companies to fund themselves with short-term debt, which is the least stable form of funding.

And there are other potential problems. First, the new law only extends to U.S. companies, while most megabanks have an international footing. It’s not clear what happens to the overseas operations of American companies while their U.S. assets are in receivership. In the case of AIG, the Fed loan kept the overseas affiliates solvent. But Congress is on the verge of explicitly preventing the Fed from extending such a loan in the future. The upshot could be chaos. For example, U.S. creditors might have to take big, upfront losses to make bondholders in overseas subsidiaries whole. That would worsen the panic at home for the reasons described above (and could eventually force Congress to step in with a bailout). All of which is to say that, while resolution authority is clearly a step in the right direction, it raises almost as many questions as it answers.

The good news is that resolution authority isn’t the only way to deal with the problem of too big to fail. Congress could simply break up the banks, for example. Alternatively, if you think of “bigness” as an externality—which is to say, something we get too much of because, like pollution or unhealthy eating, it imposes a social cost that the producer doesn’t entirely pay—then you can discourage it through taxation. (In economist-speak, this would force the banks to internalize the true social cost of their size.) One way to do this would have been to simply impose a tax on the biggest banks, which even conservative economists like Harvard’s Greg Mankiw support. Another way would be to impose stricter limits on leverage for the largest banks—that is, the amount of debt banks can take on relative to equity. Because banks earn more profits when they’re more leveraged (just like you make a larger profit, percentage-wise, when you flip a house on which you put down 5 percent versus 10 percent), this is similar to a tax on bigness.

Alas, none of these things is in the bill that Obama will soon sign. Congress voted down, and the administration opposed, an amendment by Senators Sherrod Brown and Ted Kaufman that would have shrunk some of the country’s biggest banks. Republicans then deployed a variety of underhanded tactics to block a vote on an amendment by Senators Carl Levin and Jeff Merkley that would have shut down the banks’ proprietary trading desks—which is to say, the trading they do for their own bottom line. (The administration and the congressional leadership supported the amendment, which was a relatively strict version of the so-called Volcker Rule.) And, while the government may soon assess a fee on banks to bridge the difference between the bailout money it paid out and the bailout money companies have returned, there won’t be a permanent tax on big banks.

Felix Salmon:

Amazingly, and wonderfully, the Volcker Rule has made it through the Senate, and will surely not be opposed by the House, which never got an opportunity to vote on it. While Treasury might weaken or abolish Blanche Lincoln’s amendment forcing banks to spin off their swap desks, it now seems very likely that there will be some kind of legislation attempting to reduce the amount of speculation and gambling that goes on at regulated, too-big-to-fail institutions. While that kind of activity didn’t cause the financial crisis, I like the idea of it taking place at hedge funds and other institutions which tend to be less leveraged than banks and more capable of failing without massive systemic side-effects.

Of course, there are always things we’d like to see and which won’t make it into the final bill: the greatly-lamented part of the consumer protection agency which would force banks to offer plain-vanilla financial products is one, and Treasury will ensure that any limits on size or capital or leverage come out of Basel rather than out of Washington. (Me, I’d like to see a couple of basic rules or principles be put into US legislation, which would serve to backstop Basel.)

Paul Krugman:

FinReg: what do I think? I think Ed Andrews has it right: not all it should have been, but better than seemed likely not long ago, thanks to a changed climate. Wall Street in general, and Goldman in particular, provided scandals at just the right time. Thank you, Lloyd Blankfein.

What’s good? Resolution authority, which was sorely lacking last year; consumer protection; derivatives traded through clearinghouses; ratings reform, thanks to Al Franken; tighter capital standards for big players, although with too much discretion to regulators.

What’s missing? Hard leverage limits; size caps; not much in the way of restoring Glass-Steagall. If you think that too big to fail is the core problem, it’s disappointing; if you think that shadow banking is the core, as I do, not too bad.

Now, the truth is that we won’t know how good a reform this is until the next crisis (which is very different from health care, where there will be ample opportunities to learn from experience.) And the new system clearly won’t be robust to really bad leadership: once President Palin appoints Ron Paul as Treasury Secretary, all bets are off.

James Pethokoukis:

Some observations:

1) Wall Street should thank the White House. Had President Barack Obama prioritized bank reform over healthcare at the height of the crisis, the biggest players might have been broken up, hard caps placed on balance sheets, and banking and investing operations separated. More recently, the Securities and Exchange Commission’s lawsuit against Goldman Sachs in April helped re-energize advocates for such changes.

2) Nothing radical here. While the Senate and House bills still need to be blended, it’s safe to say the most radical ideas have fallen by the wayside. A “systemic risk council” of federal regulators will recommend new capital and leverage rules to the Federal Reserve, which will be the most influential bank regulator. The Federal Deposit Insurance Corporation will have the power to wind down any failing large, systemically interconnected institution.

In addition, large, complex financial firms will have to submit plans for their rapid and orderly shutdown should they go under. And for the first time the derivatives that are currently traded privately will mostly be forced to go through clearing houses and in some cases trade on exchanges. Bank lobbyists have defended their corner: it’s not the regulatory reign of terror their clients’ most vociferous critics wanted. But it’s hardly a “light touch” regime, either, and it does involve real changes. Caveat: This assumes the Blanche Lincoln provision on derivatives is softened or stripped in the conference committee.

3) Too Big To Fail is still a problem. As long as regulators and politicians have vast amounts of discretion, a financial crisis will make bailouts an irresistible temptation. The way around this is either breaking up the banks or creating hard, market-based triggers for either regulatory action or a resolution process. Neither is in the bill.

4) Wall Street’s has an enduring PR problem. Yes, big banks are unpopular. But it has gotten so bad that they may not be able to so easily counter their image issues with campaign cash. Getting Wall Street money now has a stigma attached to it like oil and tobacco money. Candidates like Meg Whitman in California and John Kasich are getting hammered for their Wall Street ties. The industry’s continued unpopularity will no doubt spawn further attempts to tax, regulate and restrict the sector.

5) Bernanke trimphant. The Federal Reserve has to be pretty satisfied. It did not lose its role as regulator; in fact, it’s been strengthened. And the central banks was also able to fend off attempts to make it more transparent.  The downside:  The GOP (see Rand Paul)  has soured on the Fed in a big way, particularly at the grassroots. Further economic woes will lead to more calls to change its form and function.

Daniel Drezner:

Touching on a point I have made previously, however, I was struck by this Pethokoukis point:

Wall Street has an enduring PR problem. Yes, big banks are unpopular. But it has gotten so bad that they may not be able to so easily counter their image issues with campaign cash. Getting Wall Street money now has a stigma attached to it like oil and tobacco money. Candidates like Meg Whitman in California and John Kasich are getting hammered for their Wall Street ties. The industry’s continued unpopularity will no doubt spawn further attempts to tax, regulate and restrict the sector.

If the public stays this outraged for this lomg, then Pethokoukis is right. The political problems of finance are becoming so great that we could be talking about a shift in social norms with regard to what is considered “honorable” work.

Of course, paradoxically, this could serve to increase the salaraies of those still willing to go into finance. As Adam Smith pointed out in Wealth of Nations:

[T]he wages of labour vary with… the honourableness or dishonourableness of the employment…. Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed, as I shall endeavour to show by and by. Disgrace has the contrary effect. The trade of a butcher is a brutal and an odious business; but it is in most places more profitable than the greater part of common trades. The most detestable of all employments, that of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever.

Question to readers: Will the social stigma against Big Finance persist or fade as the economy bounces back?

Noah Kristula-Green at FrumForum:

Commentary from the actual Wall Street blogs has been much more cynical. One popular blog post, which has been cross-posted at seekingalpha.com is entitled: “The Senate’s Faux Financial Reform Bill”. The anonymous author “George Washington” is not happy with the legislation since he does not think it is strict enough:

The Senate passed a financial “reform” bill Thursday by a 59-39 vote which won’t fix any of the core problems in the financial system, and won’t prevent the next financial crisis.

The bill doesn’t include the Volcker Rule (it wasn’t even debated), doesn’t break up or even substantially rein in the too big to fails, and doesn’t force transparency in the derivatives market.

After citing various Senators and academics who think the bill is too weak, Washington concludes:

The bill is all holes and no cheese.

Skepticism is the rule of the day on other posts. In a post from before the passing of the bill, Mike Konczal laments if anything is truly being achieved in the reform:

Instead of real reform, I worry we are going to get to wear a T-Shirt that says: ‘Taxpayers gave TARP, GSEs, TALF, AMLF, Maiden Lanes, ring fenced half a trillion dollars worth of debt in off-balance sheets, TLGP, TSLF, double-digit unemployment etc. and all we got was a consumer hotline to the basement of the Fed.’

Other blogs noted that the bill had passed, but provided little commentary of their own. The popular Wall Street tabloid Dealbreaker, simply included a short critical comment from the U.S. Chamber of Commerce.

While political journalists are understandably focused on the bill, Wall Street’s attitude seems to be more skeptical about the prospect. This might be because they would prefer to spend their energy focusing on where the next deal might be found, as opposed to commenting on legislation. This might explain why some investment blogs are focusing their time and energy on whether Australia’s banks are about to collapse.

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Filed under Economics, Legislation Pending, The Crisis

Rhama Lama Ding Dong

Dana Milbank in WaPo:

Obama’s first year fell apart in large part because he didn’t follow his chief of staff’s advice on crucial matters. Arguably, Emanuel is the only person keeping Obama from becoming Jimmy Carter.

Obama chose the profane former Clinton adviser for a reason. Where the president is airy and idealistic, Rahm is earthy and calculating. One thinks big; the other, a former House Democratic Caucus chair, understands the congressional mind, in which small stuff counts for more than broad strokes.

Obama’s problem is that his other confidants — particularly Valerie Jarrett and Robert Gibbs, and, to a lesser extent, David Axelrod — are part of the Cult of Obama. In love with the president, they believe he is a transformational figure who needn’t dirty his hands in politics.

The president would have been better off heeding Emanuel’s counsel. For example, Emanuel bitterly opposed former White House counsel Greg Craig’s effort to close the Guantanamo Bay prison within a year, arguing that it wasn’t politically feasible. Obama overruled Emanuel, the deadline wasn’t met, and Republicans pounced on the president and the Democrats for trying to bring terrorists to U.S. prisons. Likewise, Emanuel fought fiercely against Attorney General Eric Holder’s plan to send Khalid Sheik Mohammed to New York for a trial. Emanuel lost, and the result was another political fiasco.

Jason Horowitz at WaPo:

But a contrarian narrative is emerging: Emanuel is a force of political reason within the White House and could have helped the administration avoid its current bind if the president had heeded his advice on some of the most sensitive subjects of the year: health-care reform, jobs and trying alleged terrorists in civilian courts.

It is a view propounded by lawmakers and early supporters of President Obama who are frustrated because they think the administration has gone for the perfect at the expense of the plausible. They believe Emanuel, the town’s leading purveyor of four-letter words, a former Israeli army volunteer and a product of a famously argumentative family, was not aggressive enough in trying to persuade a singularly self-assured president and a coterie of true-believer advisers that “change you can believe in” is best pursued through accomplishments you can pass.

By all accounts, Obama selected Emanuel for his experience in the Clinton White House, his long relationships with the media and Democratic donors, and his well-established — and well-earned — reputation as a political enforcer, all of which neatly counterbalanced Obama’s detached, professorial manner. A president who would need the deft navigation of Congress to pass his ambitious legislation turned to the Illinois congressman and former chairman of the Democratic Congressional Campaign Committee because he possessed a unique understanding of the legislative mind.

David Broder at WaPo:

In the space of 10 days, thanks in no small part to my own newspaper, the president of the United States has been portrayed as a weakling and a chronic screw-up who is wrecking his administration despite everything that his chief of staff, Rahm Emanuel, can do to make things right.

This remarkable fiction began unfolding on Feb. 21 in the Sunday column of my friend Dana Milbank, who wrote that “Obama’s first year fell apart in large part because he didn’t follow his chief of staff’s advice on crucial matters. Arguably, Emanuel is the only person keeping Obama from becoming Jimmy Carter,” i.e., a one-term failure.

A week later, presumably the same anonymous sources persuaded Milbank to pronounce that Obama “too often plays the 98-pound weakling; he gets sand kicked in his face and responds with moot-court zingers.”

And on Tuesday, The Post led the paper with a purported news story by Jason Horowitz saying that a president with Obama’s “detached, professorial manner” needed “a political enforcer” like Emanuel to have a chance of succeeding, “because he [Emanuel] possessed a unique understanding of the legislative mind.” Unfortunately, the story said, “influential Democrats are — in unusually frank terms — blaming Obama and his closest campaign aides for not listening to Emanuel.”

It sounded, for all the world, like the kind of orchestrated leaks that often precede a forced resignation in Washington.

Except that the chief of staff doesn’t usually force the president out. When George H.W. Bush had had enough of John H. Sununu, of course it was Sununu who walked. Maybe the sources on these stories think Obama is the one who should leave.

Here in a few paragraphs is what others high in the White House think is going on:

The underlying problem, in their eyes, is a badly damaged economy that has sunk Obama’s poll numbers and emboldened Republicans to blockade his legislative program.

Emanuel, who left a leadership post in the House to serve his fellow Chicagoan, Obama, has worked loyally for the president and is not suspected personally by his colleagues of inspiring these Post pieces.

But, as one White House staffer said to me, “Rahm likes to win,” and when the losses began to pile up, he probably vented his frustrations to some of his old pals in Congress. It’s clear that some of them are talking to the press.

Andrew Alexander, ombudsman, in WaPo:

But if there was a newsroom conspiracy, legendary Post political journalist David Broder didn’t get the memo. In a Thursday op-ed, he ridiculed Milbank’s column as “remarkable fiction” and said Horowitz had written “a purported news story.” Together, he wrote, they “sounded, for all the world, like the kind of orchestrated leaks that often precede a forced resignation in Washington.”

Horowitz told me that his story “had already started taking shape” before Milbank’s column appeared and dismissed the notion of coordination. “We did not confer,” he said. Milbank said the same, adding that he knew Horowitz was working on an Emanuel profile but didn’t know its content.

As a columnist, it’s Milbank’s job to offer a point of view. And it’s fine for Broder to use his column to assert that Milbank is off base. Differing views, well argued, are what make opinion pages stimulating.

But a news story is different. It needs to inform in a way that is balanced, authoritative and transparent to readers.

Horowitz told me the thesis for his story emerged from neutral, broad reportorial inquiry. As he talked to a wide range of informed people before Milbank’s column appeared, he said, many debunked the Emanuel-is-the-problem view. “It wasn’t just a few isolated people,” he said, adding that many offered “a new view.” That, and his anecdotal account of Emanuel’s activities, formed “the news value of it.”

Broder disagreed. “There was no news in it,” he insisted to me. “You should expect to find news on the front page of the newspaper.”

I think Broder is partially right. The Horowitz story deserved to be in The Post. While offering no major revelations, it did flesh out the thesis. But Milbank’s column already had sparked days of discussion in political circles and among the public. Displaying Horowitz’s story at the top of the front page elevated its significance despite a late-to-the-game feel.

Howie Kurtz in WaPo:

The so-called dean of the Washington press corps — not everyone considers that a compliment — is usually gentle with his jabs. So when he took a couple of whacks at journalists who happen to be on The Washington Post payroll, some folks acted like there was blood on the floor.

A pundit taking on his fellow pundits — horrors!

Forgive me for not hyperventilating over this. What are we, some kind of Victorian debating society? Columnists should feel free to challenge each other, regardless of where they work. Newspapers need to be more provocative, not less. As long as there’s no eye-gouging, let it rip.


A purported news story? That’s unfair. Horowitz’s piece was an extensively reported effort at analyzing what is going on inside the White House that quoted 11 people on the record, most of them members of Congress as well as Obama aide Valerie Jarrett. Broder may disagree with the story’s thrust, but that doesn’t make it faux news.

Chris Good at The Atlantic:

This is a point Marc argued, originally, in reaction to Milbank’s column that started the recent Emanuel buzz: that these stories were the result of pro-Emanuel leaks, probably from his allies and not the chief of staff himself, and that the Post’s writers have taken those leaks a step too far–verging into full-on pro-Rahm analysis.

A question Marc raised–and one that Broder deals with–is whether all this talk is an entree to Emanuel stepping down as chief of staff.

If it is a product, as Broder suggests, of Emanuel venting frustrations to some of his pals, rather than an orchestrated leak, one has to think it’s not. An Emanuel resignation would certainly satisfy liberals, but now that there’s an impression that Obama hasn’t listened to his chief of staff on big tactical maneuvers, parting ways with Rahm wouldn’t allow the White House to disown any of its politics up to this point.

Attaturk at Firedoglake:

Oh, I’m sure no one would ever “suspect” Rahm of leaking stuff to the press, to make Rahm Emanuel look better, that would be f***ing retarded. It’s nice to see passive aggressiveness remains entrenched within the 1600 Pennsylvania Avenue — for 8 years I missed the passivity.

I will not take sides in a Broder vs. Milbank battle, other than to cheer on the war. But there is a point in Broder’s column when you cannot help but utter the statement, “WELL THAT’S RICH”

Erick Erickson at Redstate:

Reading between the lines, Rahm Emanuel is dead. He may not know it, but the man has no pulse left. His ghost is now trying to defend his legacy in the White House. Chief of Staff — the real one — Valerie Jarrett killed Rahm.

How do I know? I’ve heard from multiple people who, interestingly enough, are close to the White House who tell me that David Axelrod and Valerie Jarrett are calling the shots and Obama increasingly relies on Jarrett for advice because she knows the Obamas, not necessarily Washington.

Then there are all the pro-Rahm stories in the last few weeks. Those stories do not happen randomly. There is a purpose. And the prevailing message is simple — if the President would listen to Rahm Emanuel, he’d not be in the mess he presently is in. And if Rahm is not being listened to and is now leaking that he is not being listened to, the wheels on the bus will go round and round over his body.

But the stories are right. The wheels are falling off the bus. Without a good knowledge of Washington, the Chicago Way fails in the inertia. Let’s start the Official Rahm Emanuel Dead Pool. We know Valerie Jarrett already killed him. But his body has yet to emerge from the White House.

It’s only a matter of time. And it’ll happen before summer.

Joe Klein at Swampland at Time:

This is the most unBroderian column I have ever–ever–read, in which the dean slags his own newspaper, and several of his colleagues by name, for staging the Rahmadan festival of recent days.

“This is the most unBroderian column I have ever — ever — read,”marvels Joe Klein. I agree. And props to David Broder and the op-ed page for publishing it. This type of internal disagreement and willingness to pull back the curtain on how news stories get seeded, sourced and written is good for readers and makes for an interesting newspaper.

Glenn Greenwald:

One related point about the spate of “Obama-should-have-followed-Rahm’s-centrist-advice” articles that have appeared of late:  if you really think about it, it’s quite extraordinary to watch a Chief of Staff openly undermine the President by spawning numerous stories claiming that the President is failing because he’s been repeatedly rejecting his Chief of Staff’s advice.  It seems to me there’s one of two possible explanations for this episode:  (1) Rahm wants to protect his reputation at Obama’s expense by making clear he’s been opposed all along to Obama’s decisions, a treacherous act that ought to infuriate Obama to the point of firing him; or (2) these stories are being disseminated with Obama’s consent as a means of apologizing to official Washington for not having been centrist enough and vowing to be even more centrist in the future by listening more to Rahm (we know that what we did wrong was not listen enough to Rahm).  One can only speculate about which it is, but if I had to bet, my money would be on (2) (because of things like this and because these “Rahm-Was-Right” stories went on for weeks and Rahm is still very much around).Of course, the reason we have to speculate about such matters is precisely because journalists suppress the identity of those who are doing this, leaving us with a bunch of unaccountable royal court gossip and intrigue, the authors of which are completely shielded by these “journalists.”  That’s why anonymity more often than not obfuscates rather than enlightens.

John Cole:

I think you’d have to be nuts to think Rahm is behind the recent “Rahm was right” stories. It may be “friends” of Rahm who think they are doing Rahm a favor, or it may be folks in Washington playing their own political games, but no Chief of Staff in their right mind would be behind stories like this. Rahm may be a lot of things, but he is not a blithering idiot, and I’d bet anything he hates these stories as much as Obama

The second point, that Obama is not only ok with these stories but furthermore is “apologizing” to Washington is as crazy and conspiratorial as I’ve ever seen. It makes, quite honestly, no sense. Obama is ok with spreading stories that appear to have his Chief of Staff undercutting him?

Glenn consistently mocks the 11-dimensional chess when Obama’s defenders use it deflect blame when the Obama team has made mistakes. It’s absurd to then suggest that the Obama team is now deploying 11 dimensional chess with the media in order to apologize to centrist Washington. It particularly makes no sense when you consider Obama has become far more aggressive in the past few weeks (up or down vote, the line drawn at the HCR summit).

More than likely, I’d bet these stories are coming from Rahm’s buddies who think they are doing him a favor.

Noam Scheiber at TNR, with another Rahm profile:

At 50, Emanuel has the lean, taut look of a lifelong swimmer, with broad shoulders and distractingly prominent quadriceps. But at the heart of the Emanuel mystique is the family patois, which lurches between pronounced curtness and vivid, sometimes scatological, imagery. Emanuel will casually toss off quips like, “You’re in the bowels of nothin,’ man.” One former colleague recalls making two or three requests during a sensitive negotiation, only to have Emanuel respond: “Well, I guess if I can take care of Bill Clinton’s blow jobs, I can take care of that.”

And then there are the f-bombs, which Emanuel reels off like a verbal tic, sometimes embedding them in other words with Germanic aplomb. There is, for example, “Fucknutsville” (his pet name for Washington) and “knucklefuck” (an honorific bestowed on Republican opponents). In administration meetings, Emanuel will occasionally announce, “I think it’s fucking idiotic, but it’s your call.” (That would be Rahm-speak for: “You have more expertise than I do on this subject.”) He’s even been known to use the imprecation as a term of endearment, as when he signs off friendly phone calls: “Fuck you. See you later. I love you.” As Phil Kellam, one of Emanuel’s star recruits from the 2006 election cycle, recently joked to me, “If you could sum up Rahm Emanuel, it would be: big ideas, big mouth, big heart, little finger.” (Emanuel lost half his middle finger in a teenage accident.)

Among those most fluent in the Emanuel vernacular are members of the Obama economic team, with whom the chief of staff interacts constantly. For example, on February 10, 2009, Treasury Secretary Timothy Geithner delivered a speech laying out the various steps he would take to revive the financial system. The pundits promptly panned it, and the markets began to swoon. Both had expected Geithner to deliver a detailed set of remedies; instead, the secretary offered only the broad contours of a strategy.

Emanuel went ballistic. “He was like, ‘How could they have let expectations get so out of whack?’” recalls one official. Soon after, he began to take a special interest in Geithner’s work– in the way that a Jewish mother can be said to take a special interest in her son’s romantic life.

A quick review of Geithner’s schedule from one week last February will illustrate the point. On four of the five days, Geithner attended a White House senior staff meeting from 8:15 a.m. to 8:45 a.m., which Emanuel runs. In addition to this, Geithner joined a conference call with Emanuel and Larry Summers on the afternoon of Monday, February 16. On Tuesday, Geithner had a call with Emanuel scheduled from 8:30 p.m. to 9:30 p.m. Wednesday afternoon brought Geithner to an Oval Office meeting with Emanuel, Summers, and the president. This was followed by an hour-long meeting in Emanuel’s office. Geithner was back at the White House Thursday morning for a one-on-one meeting with Emanuel; Emanuel then called that afternoon and spoke to Geithner for 15 minutes. The next morning, it was Geithner who called Emanuel. A few hours later, Geithner turned up for a 90-minute meeting in Emanuel’s office.

When the Treasury Department released Geithner’s schedule last fall, the media made much of his conversations with Wall Street CEOs. But, as one official told me, “the interesting story wasn’t that Tim speaks to bankers–every treasury secretary does. It’s the extent of time he’s on the phone with Rahm.”

And yet, even here, the Cheney-Rove-Rasputin analogy breaks down. Emanuel wasn’t dictating policy to Geithner. Rather, the mantra of the meetings was “no more surprises.” (The president had inadvertently added to Geithner’s February 10 fiasco by talking up the speech beforehand; Emanuel partly blamed himself for the mix-up.) As another official describes it, “Rahm did not spend a lot of time on the ‘What, we have to bail friggin’ AIG out? It’s going to kill us politically.’ He just started making sure everyone was communicating.” Emanuel also wanted to ensure that, as the administration rolled out specific proposals–toxic-asset purchases, relief for troubled homeowners–Treasury sold them preemptively to journalists and Wall Street muckety-mucks.

Ezra Klein:

The Obama administration doesn’t reflect Rahmism or Axelrodism or Gibbsism. It’s Obamaism. Presidents need good advice, of course, but on the mega issues we’re talking about, the tradeoffs are fairly clear. You could replace Emanuel with another chief of staff and if Obama still choose to go for large legislative initiatives but doesn’t crack the heads necessary to keep the process moving fast or decides that Republicans might really cooperate this time, the outcome will be no different. People are, of course, a lot more comfortable blaming staffers, because staffers can be changed and no one wants to countenance the fact that the president himself doesn’t agree with them.

Jason Linkins at Huffington Post:

Once you get past the litany of Things That Make Rahm Emanuel’s Life So Hard, Scheiber takes a deep dive into Emanuel’s role in the health care reform debate. To boil it down, Emanuel preferred a strategy that placed a premium on speed and momentum. Unfortunately, President Obama apparently took all that stuff he said about operating in an open fashion with all parties seriously, and so, at a critical moment, he let Max Baucus be Max Baucus, and that prolonged the reform debate to where it is today — facing a post-Scott Brown Senate, and the obstacles that creates.

As it turns out, I’m pretty sympathetic to Emanuel on this score. The deliberations of Baucus’s “Gang Of Six” and the intense attempt to court Chuck Grassley proved to be largely useless (much in the same way as an intense courtship of Lindsey Graham, frankly!).

It’s still curious! For a guy who was supposedly at odds with White House staffers rooted in campaigning, Emanuel’s approach was to manage health care reform as a horse-race campaign rather than a policy that needed to be well-crafted. And for a guy who was worried about how it was “just too easy for opponents to cull a few smelly details” on the health care reform policy, his approach — selling out to the pharmaceutical industry and hospitals (deals that Rahm “trumpeted loudly,” so that people noticed) — put some foul-smelling stuff pretty front and center.


Look. Whether or not Emanuel works in the White House or doesn’t, whether he’s praised or blamed for his efforts, whether he gets his way or he doesn’t and whether or not Americans get expanded health care coverage or crucial financial reform, the important thing to remember is that Rahm Emanuel is going to be just fine, forever and ever. It really is vastly, almost inconceivably easy, to be Rahm Emanuel. Let’s stop pretending the man is suffering.

Peter Baker in NYT, with yet another Rahm profile:

In this season of discontent for Obama, Emanuel has emerged as the leading foil, the easy and most popular target for missiles flung at the White House from all sides. He is the bête noire of conservatives who see him as the chief architect of Obama’s big-government program and of liberals who consider him an accommodationist who undermines the very same agenda. The criticism has been searing and conflicting. He didn’t work enough across party lines. He tried too hard to work across party lines. He pushed for too much. He didn’t push for enough. The crossfire underscores his contradictions — how can Emanuel be so intensely partisan without being all that liberal and so relentlessly pragmatic without being bipartisan? And just as salient these days, how can he be so independent-minded and still remain loyal to a team operation?

After a series of attacks last month came articles in The Washington Post and elsewhere defending Emanuel, which in a way was worse for him, because it fed suspicions that he was secretly disparaging the president and colleagues. None of his closest friends believe he would deliberately do that, but all the attention on him lately has stirred widespread grumbling inside the White House about the violation of the “no-drama Obama” ethos cultivated during the campaign. Even some of Emanuel’s friends are aggravated at the perception that White House officials are taking shots at one another. As for Obama, “he’s irritated by the stories,” a top aide told me, and Emanuel has “expressed regret” to the president.

Emanuel, who declined to talk to me on the record for this article, generally shrugs off most of the commentary, scorning armchair critics who haven’t spent time in the White House or Congress actually trying to accomplish something. But at least some of this is bravado. “He is obviously going through a tough patch,” William Daley, a former commerce secretary and a close friend, says. “Everybody wants to dump on him because they don’t want to dump on the president.” Daley told me it is eating away at Emanuel: “Contrary to what he says, this stuff does bother him. He cannot fail. And if he thinks people think he failed, it depresses him. He can’t stand the thought that he’s failed, and he’s hearing that from too many people now.”

Eric Zimmermann at The Hill:

Rep. Eric Massa (D-N.Y.) is taking some harsh parting shots at the White House on his way out of office.

Massa, who is stepping down amid allegations of sexual harrassment, said that Emanuel is a ruthless tactician who would “sell his mother” for a vote.

“Rahm Emanuel is son of the devil’s spawn,” Massa said in a radio interview. “He is an individual who would sell his mother to get a vote. He would strap his children to the front end of a steam locomotive.”

UPDATE: More Linkins

UPDATE #2: John Dickerson at Slate

UPDATE #3: Mark Schmitt and Noam Scheiber at Bloggingheads

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