Progressives Should Stop Confirming Wall Street Hacks Nominated By Obama

Elizabeth Warren relentlessly grilled a hapless Federal Housing Finance Agency Director, Mel Watt Thursday. Watch the questioning above. Clearly he was the wrong guy for the job and Obama should never have made this pathetic, political appointment-- and the Senate shouldn't have approved it. They did it as they were rushing to get home for Christmas along with half a dozen judges, the Secretary of Homeland Security, an Assistant Secretary of the State, a Deputy Secretary of State and a bunch of other administrators the Republicans had kept bottled up for partisan reasons. The Republicans filibustered Watt, for no particular reason, and two of his Republican political pals-- home state Senator Richard Burr (R-NC) and Rob Portman (R-OH)-- joined every Democrat in passing cloture. Warren voted for cloture. In the end he was confirmed 57-41. Is Warren sorry now she voted for him? If you're asking, you haven't watched the video.

A few days ago Warren wrote a piece about a new Obama nominee, multimillionaire Antonio Weiss-- net worth somewhere between $55 million and $200 million, but who's counting?-- as Under Secretary for Domestic Finance at the Treasury Department, a position that oversees Dodd-Frank implementation and a wide range of banking and economic policymaking issues, including consumer protection. Something tells me this isn't going to be one Warren votes for-- nor should she... and neither should anyone else. As she said, enough is enough. "Who," she asked, "is Antonio Weiss?" Well, besides a generous donor to the Democratic Party, here's how Elizabeth Warren describes him:

He's the head of global investment banking for the financial giant Lazard. He has spent the last 20 years of his career at Lazard-- most of it advising on international mergers and acquisitions.

That raises the first issue. Weiss has spent most of his career working on international transactions-- from 2001 to 2009 he lived and worked in Paris-- and now he's being asked to run domestic finance at Treasury. Neither his background nor his professional experience makes him qualified to oversee consumer protection and domestic regulatory functions at the Treasury. As someone who has spent my career focused on domestic economic issues, including a stint of my own at the Treasury Department, I know how important these issues are and how much the people in Treasury can shape policies. I also know that there are a lot of people who have spent their careers focused on these issues, and Weiss isn't one of them.

The second issue is corporate inversions. Basically, a bunch of companies have decided that all the regular tax loopholes they get to exploit aren't enough, so they have begun taking advantage of an even bigger loophole that allows them to maintain their operations in America but claim foreign citizenship and cut their U.S. taxes even more. No one is fooled by the bland words "corporate inversion." These companies renounce their American citizenship and turn their backs on this country simply to boost their profits.

One of the biggest and most public corporate inversions last summer was the deal cut by Burger King to slash its tax bill by purchasing the Canadian company Tim Hortons and then "inverting" the American company to Canadian ownership. And Weiss was right there, working on Burger King's tax deal. Weiss' work wasn't unusual for Lazard. That firm has helped put together three of the last four major corporate inversions that have been announced in the U.S. And like those old Hair Club commercials used to say, Lazard isn't just the President of the Corporate Loopholes Club-- it's also a client. Lazard moved its own headquarters from the United States to Bermuda in 2005 to take advantage of a particularly slimy tax loophole that was closed shortly afterwards. Even the Treasury Department under the Bush administration found Lazard's practices objectionable.

The White House and Treasury have strongly denounced inversions, and rightly so. But they undercut their own position by advancing Mr. Weiss. Already Senator Grassley has denounced the move as hypocritical, and Senator Durbin has expressed his opposition to the nomination over the inversion issue. The Independent Community Bankers of America, which represents smaller banks from across the country, has opposed the nomination as well-- only the second time in thirty years that they have publicly opposed a presidential nomination.

The response from the White House to these concerns has been two-fold. First, they say that Mr. Weiss was not involved in the tax side of the Burger King deal. But let's speak plainly: This was a tax deal, plain and simple. It was designed to reduce Burger King's tax burden, and Weiss was an important and highly-paid part of the team. Second, the White House claims that Mr. Weiss is personally opposed to inversions. Really? Did he work under protest, forced to assist this deal against his will? Did he speak out against tax inversions? Did he call out his company for profiting so handsomely from its tax loophole work? The claim of personal distaste is convenient, but irrelevant.

Third, there's the larger, more general issue of Wall Street executives dominating the Obama administration, as well as the Democratic Party's, overall economic policymaking apparatus. I wrote about this problem a couple of months ago on The Huffington Post in more detail.

Here is what I wrote then:

Just look at the influence of one mega-bank-- Citigroup-- on our government. Starting with former Citigroup CEO Robert Rubin, three of the last four Treasury secretaries under Democratic presidents held high-paying jobs at Citigroup either before or after serving at Treasury-- and the fourth was offered, but declined, Citigroup's CEO position. Directors of the National Economic Council and Office of Management and Budget, the current Vice Chairman of the Federal Reserve and the U.S. trade representative, also pulled in millions from Citigroup.

That's what the revolving door looks like at just one Too Big to Fail Bank. What about others? The influence of Goldman Sachs in Washington has been much documented, including here at The Huffington Post. JPMorgan? Shortly before the [Eric] Cantor episode, another former member of Congress -- Democrat Melissa Bean -- took the same senior job at JPMorgan Chase previously held by Democrat Bill Daley before his recent service as White House Chief of Staff. Yes-- this is just a single position at JPMorgan Chase, evidently reserved for the latest politician ready to cash in on Wall Street.

I could go on-- and I will. Soon after they crashed the economy and got tens of billions of dollars in taxpayer bailouts, the biggest Wall Street banks started lobbying Congress to head off any serious financial regulation. Public Citizen and the Center for Responsive Politics found that in 2009 alone, the financial services sector employed 1,447 former federal employees to carry out their lobbying efforts, swarming all over Congress. And who were their top lobbyists? Members of Congress-- in fact, 73 former Members of Congress.

According to a report by the Institute for America's Future, by the following year, the six biggest banks employed 243 lobbyists who once worked in the federal government, including 33 who had worked as chiefs of staff for members of Congress and 54 who had worked as staffers for the banking oversight committees in the Senate or the House.

In recent years, President Obama has repeatedly turned to nominees with close Wall Street ties for high-level economic positions. Jack Lew, who was a top Citigroup official, now serves as Treasury Secretary. The President's choice for Treasury's highest international position, Nathan Sheets, also comes from Citi. For the number two spot at the Federal Reserve, the President tapped Stanley Fischer, another former Citigroup executive. A Bank of America executive, Stefan Selig, was put in charge of international trade at the Commerce Department. The President's two recent picks for the Commodity Futures Trading Commission-- including his choice for Chairman-- are lawyers who have spent their careers representing big financial institutions.

There's plenty of financial expertise in this country. People with banking experience haven't all flocked to the biggest banks; community banks and regional banks, along with smaller trading houses and credit unions, have some very talented people. Nor must every government official come from the financial sector; executives from other business areas, lawyers who have practiced in a wide range of fields, academics, financial advisers, non-profit employees, think-tank researchers, and people with experience elsewhere in government have deep wells of knowledge-- and perspectives that sometimes differ from those who run Wall Street banks.

The over-representation of Wall Street banks in senior government positions sends a bad message. It tells people that one-- and only one-- point of view will dominate economic policymaking. It tells people that whatever goes wrong in this economy, the Wall Street banks will be protected first. That's yet another advantage that Wall Street just doesn't need.

I have voted against only one of President Obama's nominees: Michael Froman, a Citigroup alumnus who is currently storming the halls of Congress as U.S. Trade Representative pushing trade deals that threaten to undermine financial regulation, workers' rights, and environmental protections. Enough is enough.

It's time for the Obama administration to loosen the hold that Wall Street banks have over economic policy making. Sure, big banks are important, but running this economy for American families is a lot more important.

UPDATE: Bernie's A No Vote

Bernie Sanders announced he's voting against Weiss. "The Wall Street crash of 2008, caused by the greed and illegal behavior of major financial institutions, created the worst recession in modern history. We need an economic team at the White House which will hold Wall Street accountable and fight for the needs of working families, not more Wall Street executives," he said. "The American people are disgusted with Wall Street bankers who find loopholes in the tax code to help profitable companies shelter profits in offshore tax havens in order to avoid paying their fair share of U.S. taxes. We need economists in government who have a history of helping to create jobs, not helping corporations avoid taxes."

The Best Thing About Jack Lew's Nomination: He's Not Erskine Bowles

Lew & Geithner-- you'll never know the difference

It's not a shock that Obama picked his chief of staff, Jacob "Jack" Lew as his Treasury Secretary to replace Tim Geithner. It's unlikely anyone will ever know Geithner's gone and Lew took his place-- except on Saturdays when the Orthodox Lew doesn't work. (I wonder if Obama is looking into a Shabbos Goy if anything important comes up on a Saturday... Colin Powell, Mario Cuomo, Martin Scorsese and Elvis Presley have all played that role; no, really.)

The White House spin machine has put it out there that Lew is "a liberal" who was down with Eugene McCarthy and Paul Wellstone, which scares me since there's a good chance that if they're saying that, he's probably really a horrible conservative. What we do know about him is that when he was chief operating officer of Citi's Alternative Investment department, he invested in a hedge fund that was betting on the collapse of the housing market.

Under Lew, the Multi-Adviser fund doubled its investment in Paulson's fund to nearly $42 million by March 2008; by the next quarter, it'd cranked that investment up to just over $60 million, making it the biggest piece of the Multi-Adviser fund, Nasiripour reported. So how'd it go for Lew and Citi?:

Citi paid Lew $1.1 million for his year at Alternative Investments, according to an ethics disclosure report filed in January 2009. He was also eligible for an undisclosed bonus... His unit, though, lost as much as billions of dollars in 2008 as its bets turned sour. In the first quarter of 2008 alone the unit lost $509 million; the company stopped publicly disclosing the unit's individual numbers soon thereafter, but the part of the company that absorbed Alternative Investments lost $20.1 billion in 2008, according to the bank's filings with the Securities and Exchange Commission.

Citigroup, as you might recall, also received $45 billion in TARP money.

The White Houset says he's a "budget wiz" (like Paul Ryan?) and worked as director of the OMB for both Clinton and Obama. (Before taking the OMB job, Lew worked for Hillary at the State Dept. as deputy secretary for management and resources, providing the perfect excuse for Lindsey Graham or some other deranged right-wing obstructionist in the Senate to put a hold on the nomination until they get answers to their silly Benghazi smears. But probably not. He'll likely be confirmed-- once again-- by the Senate and make Wall Street very happy that they have one of their own-- once again-- as Treasury Secretary.

He's famous for his awful signature. Below is what it might look like on a dollar bill. I wonder if he could also sign the trillion dollar coin. As you may recall, I would have preferred Brad Miller or Paul Krugman get the job, but both are progressive and Obama... isn't. And he only accepts pressure from the far right, not from the moderate left. Don't talk to Obama (or Lew) about breaking up the big criminal bankster operations.

The biggest Wall Street banks are now far bigger than they were four years ago when they were considered too big to fail. The five largest have almost 44 percent of all US bank deposits.

That’s up from 37 percent in 2007, just before the crash. A decade ago they had just 28 percent.

The biggest banks keep getting bigger because they can borrow more cheaply than smaller banks. That’s because investors believe the government will bail them out if they get into trouble, rather than force them into a form of bankruptcy (as the new Dodd-Frank law makes possible).

That’s why it’s necessary to limit their size and break up the biggest.

Washington may be getting the message. A few months ago Dan Tarullo, the Fed governor who specializes in bank regulation, proposed capping the size of the banks’ balance sheets.

Some former titans of Wall Street are saying much the same thing. Even Sandy Weill, who created Citigroup (which required $445 billion in TARP loans and asset guarantees) is proposing the biggest banks be broken up.

The new Congress may also be supportive. The new chairman of the House Financial Services Committee, Texas Republican Jeb Hensarling, has been a strong ally of small banks in their push to rein in their bigger rivals, and has expressed concern about the largest being too big to fail.

It’s not irrelevant that the Dallas branch of the Federal Reserve Board, in Hensarling’s home district, has also proposed breaking up the biggest.

Meanwhile, over in the Senate, Ohio Senator Sherrod Brown, is a strong advocate for breaking up the big banks and is now on the Senate Finance Committee. And Elizabeth Warren, scourge of Wall Street, will sit on the Senate Banking Committee.

In other words, the timing is right. The oven is ready. All we need is another multi-billion dollar banking loss-- like JP Morgan Chase’s last year-- and the biggest banks are cooked.

Let's see if anyone asks Mr. Lew about it.

UPDATE: BERNIE SANDERS-- A NO VOTE ON LEW!

Senator Sanders:

“Jack Lew is clearly an extremely intelligent person and I applaud his many years of public service to our country. I believe that he will be confirmed by the Senate. Unfortunately, he will be confirmed without my vote. At a time when the middle class is collapsing and millions of workers are unemployed, I do not believe he is the right person at the right time to serve in this important position.

“As a supporter of the president, I remain extremely concerned that virtually all of his key economic advisers have come from Wall Street. In my view, we need a treasury secretary who is prepared to stand up to corporate America and their powerful lobbyists and fight for policies that protect the working families in our country. I do not believe Mr. Lew is that person.

“We don't need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis. We need a treasury secretary who will work hard to break up too-big-to-fail financial institutions so that Wall Street cannot cause another massive financial crisis.

“We don’t need another treasury secretary who believes in ‘deficit neutral’ corporate tax reform. We need a treasury secretary willing to fight to make sure that large, profitable corporations pay their fair share in taxes to reduce the deficit and create jobs.

“We don't need a treasury secretary who will advise the president that he should negotiate with the Republicans to cut Social Security, Medicare, and Medicaid benefits. We need someone who is going to strengthen these programs.

“We don’t need another treasury secretary who believes that NAFTA and Permanent Normal Trade Relations with China have been good for the American economy. We need someone in the White House who works to fundamentally re-write our trade policy to make sure that we are exporting American goods, not American jobs."

Will Obama Name Brad Miller Secretary Of The Treasury?

When the North Carolina legislature sat down to redistrict the state, they targeted 3 Democratic incumbents with grotesquely gerrymandered districts: two Blue Dogs-- Larry Kissell, who was defeated, and Heath Shuler, who promptly got a job as a K Street lobbyist and retired, his seat going to a radical right sociopath-- and a mainstream progressive, Brad Miller, who would have had to challenge a friend and colleague, David Price, if he was to remain in Congress. First elected to the North Carolina legislature in 1992 and to Congress in 2002, Brad is one of Congress' most brilliant and decent members (a graduate of the London School of Economics and Columbia Law). But he opted to retire instead of going up against Price. He has been one of the Democratic stars on the House Financial Services Committee and his tenure has been all about working to protect consumers from financial predators. He wrote the Mortgage Reform and Anti-Predatory Lending Act of 2009, which passed the House but which the banksters were able to get their shills in the Senate to kill. A bill he worked on with Elizabeth Warren, the Financial Product Safety Commission Act, was included as one of the better parts of Dodd-Frank.

There couldn't be a better nomination Obama could make as Treasury Secretary for his second term. Nor one he is less likely to consider. Brad Miller is not a shill of the Wall street banksters or K Street hucksters. That alone would tend to disqualify him from presidential consideration for a job like that. And, if that wasn't enough, he had the temerity to face down Federal Reserve Chairman Ben Bernanke in 2006 and ask him, "With tax cuts going to the people who receive inherited wealth, can you identify a single policy of this Congress or the Bush Administration that appears directed at closing income inequality or the concentration of wealth?" Nope, not a potential Obama Secretary of the Treasury. Yesterday, Brad penned a long piece for American Banker that demonstrates exactly the kind of Secretary of the Treasury Obama should be-- but isn't-- looking for.

The speculation about what to expect in a second Obama term has overlooked one obvious possibility: another financial crisis.

According to JPMorgan Chase CEO Jamie Dimon, financial crises are "something that happens every five to seven years," which makes us due for the next one in the next four years. Tyler Cowen, a professor of economics at George Mason University, has said "the most important development to emerge from America's financial crisis" was that the "age of the bank run has returned," a view he ascribes to economists generally.

Rather than rely on insured deposits for financing, the biggest financial institutions now rely increasingly on the largely unregulated shadow banking system. The sheer size of shadow banking—$67 trillion, according to the Financial Stability Board-- may create "a need for sudden payouts [that] could also prompt a run on a financial institution," Cowen says. "It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions, perhaps followed by deflationary collapses."

All of this makes banking regulators' nonchalance about preparing for a crisis puzzling.

The Dodd-Frank Act did not break up the biggest banks into small-enough-to-fail institutions or end their reliance on shadow bank borrowing. Instead, the Act provides an "orderly resolution authority" so regulators can dismantle failing institutions without catastrophic consequences for the financial system or for the real economy.

The Act requires the largest institutions to submit resolution plans, or "living wills," to help regulators prepare. Living wills outline how institutions are organized and identify critical operations and known risks. Regulators use living wills to spot impediments to quick, orderly resolution in bankruptcy. If the plans do not show a credible way to avoid severe disruption, regulators can require tougher supervision or restructuring.

The biggest banks submitted their first living wills this summer. William Dudley, the president of the Federal Reserve Bank of New York, recently conceded that the banks' living wills "confirmed that we are a long way from the desired situation in which large complex firms could be allowed to go bankrupt without major disruptions to the financial system and large costs to society. Significant changes in structure and organization will ultimately be required for this to happen." The "initial exercise," Dudley said, provided regulators a "better understanding of the impediments to an orderly bankruptcy," and was the beginning of an "iterative process."

Simon Johnson, former chief economist for the International Monetary Fund, concluded from Dudley's remarks that the living wills process was "a sham, meaningless boilerplate and box checking." Maybe Johnson is too harsh, but "ultimately" is a very indulgent deadline in the new "age of the bank run." The uncertainties in the financial system may not allow for year after year of polite suggestions by regulators and modest tweaks by institutions.

Dudley said that the "current approach" of regulators is to reduce the likelihood that the biggest institutions might fail by requiring frequent stress tests, increased capital and liquidity buffers, and reforms to shadow banking and derivatives markets. "The bad news is that some of these efforts are just in their nascent stages," Dudley said.

The "blunter approach" of breaking up the biggest banks "may yet prove necessary," Dudley said, but it is "premature to give up on the current approach."

The "negative externalities" of the last crisis, to use Dudley's phrase, were widespread, long-term unemployment and underemployment; declining wages; the loss of decades of wealth accumulation by most families; and frightening rage that may be incompatible with enduring, stable democracy. A trial and error approach to regulation really should not be an option.

Megabanks have many incentives to remain too big to fail. They apparently enjoy immunity from criminal prosecution, even for "epic" rigging of the world's benchmark interest rates to defraud counterparties to interest rate derivatives, and for money laundering for terrorists, genocidal regimes and drug cartels. The "implicit government guarantee" provides almost unlimited liquidity for every line of business and allows megabanks to borrow more cheaply than smaller competitors. Megabanks will not voluntarily become small enough or simple enough to fail.

In fact, the most obvious impediments to orderly resolution appear intentional. The seven largest banks have 14,500 subsidiaries between them, but each megabank operates as a single enterprise with consolidated management and a common pool of capital and liquidity. As a result, every subsidiary is responsible for the liabilities of the parent corporation and all of the siblings. An obvious starting point for regulators is to require that the riskiest lines of business be conducted in separately managed, separately capitalized subsidiaries. A stand-alone subsidiary could fail without a collapse of the entire enterprise, and if the enterprise became insolvent, many subsidiaries could still operate relatively normally. Stand-alone subsidiaries would be easier to sell or spin off without serious disruption, even if the megabank is at the point of death.

The Dodd-Frank Act did not give regulators the choice of taking measures to make a panic less likely or planning for a panic. Banking regulators should act with urgency to require that living wills be credible plans to resolve failing firms without the "negative externalities" of the last crisis. Banking regulators should not wait for a protracted "iterative process" to remove obvious impediments to orderly resolution.

Obama has been kicked around by Republicans insisting he give John Kerry the Secretary of State job and by AIPAC Zionists insisting he ditch Chuck Hagel as a potential Secretary of Defense. The thing about Secretary of the Treasury is that Wall Street won't even have to raise its voice to make sure Obama doesn't even consider anyone as qualified to work for the interests of the American people-- rather than the odious criminal banksters who finance the careers of American politicians-- as Brad Miller. Miller has as much a chance of being nominated by Obama as he would being nominated by Mitt Romney, John McCain or George Bush. Brad Miller has made it abundantly clear-- and quite publicly-- that he  fully understands the nature of Wall Street/Capitol Hill corruption.

HSBC did say they were sorry for laundering billions of dollars for terrorists, genocidal regimes and drug cartels. "We accept responsibility for our past mistakes," Stuart Gulliver, HSBC's CEO said. "We have said we are profoundly sorry for them, and we do so again." The settlement also "would most likely tarnish the bank's reputation," so maybe HSBC executives will feel embarrassed at holiday parties.

Not everyone agrees that the settlement was tough punishment that fit the crime. Rolling Stone's Matt Taibbi asked "Are you fucking kidding me? That's the punishment?" A New York Times editorial, in more Gray Lady-like language, called the settlement "a dark day for the rule of law." "When prosecutors choose not to prosecute to the full extent of the law in a case as egregious as this," the editorial said, "the law itself is diminished. The deterrence that comes from the threat of criminal prosecution is weakened, if not lost." Even the Economist asked "Has a handful of banks become not too big to fail, but too big to jail?"

So what are government officials in Kenya, Azerbaijan or Nepal going to make of our scolding about the evils of corruption and the importance of the rule of law? Our moral authority may be in doubt, but our advice is sound. Nations really do work better when an impartial rule of law constrains abuses of political or economic power.

Maybe we should take our own advice.

I'm sure Brad Miller is not even on Obama's Christmas card list.

Wall Street Kind Of Lost-- But Not Really, Of Course

Did you help elect Obama? Watch him reward Wall St. for your efforts

Wall Street certainly wanted Romney to win the presidency and, overall, backed a GOP takeover of the Senate and continued, even expanded, GOP dominance of the House of Representatives. Last Tuesday Wall Street was thwarted by the voters. But... no need for anyone there to panic-- or even frown.

The little chart from OpenSecrets.org below shows the top 5 biggest direct donors to the Romney campaign. This doesn't count the tens of millions of dollars Wall Street poured into PACs and SuperPACs supporting his campaign. Wall Street gave Romney's campaign (again, not counting outside groups) $52,108,339 and gave President Obama $18,718,167.

Wall Street, of course, gave heavily to both parties, $155,963,660 to Republicans and about half that much ($78,779,264) to the Democrats. 291 Republican candidates and 246 Democratic candidates took thinly veiled legalistic bribes from Wall Street this cycle. The Wall Street criminal bankster class has friends everywhere. Aside from Romney, Wall Street's biggest bet in Congress-- Scott Brown ($3,770,504)-- also went bust... although among the legislators for whom they forked out at least a million dollars, Brown was the only loser in either House of Congress. These 7 Republicans and 5 Democrats are well-placed to protect Wall Street's interests and further its toxic, anti-family agenda.

If Obama wanted to get "revenge," he would appoint a new Attorney General who would start drawing up indictments for the next two months and start making arrests in January. Imagine Eliot Spitzer, who Wall Street undermined and figured they have gotten out of their hair permanently. It would be a very popular move. And, more to the point, Obama could break with tradition and appoint someone Treasury Secretary who is not a pre-approved Wall Street shill and lackey for the interests who tried to defeat him and destroy his party. Imagine Paul Krugman or Robert Reich in the job-- someone looking out for the interests of America's working families and for this small businesses that are the backbone of the economy, rather than for the bottom lines of a handful of a few criminal mega-banks! What, you wonder, would Robert Reich be like as Secretary of the Treasury? Well, his ideas about a Grand Bargain, don't sound very Obama-like. They sound more like FDR:

First, raise taxes on the rich-- and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years.

Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually-- which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there.

A 2% surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion.

Add this up and we get $2 trillion over ten years-- half of the deficit-reduction goal.

Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.

Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.

End the Bush tax cuts on incomes between $250,000 and $1 million, and-- bingo-- we made it: $4 trillion over 10 years.

And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor.

Yesterday John Ydstie did a report on NPR about what Obama is likely to do with Treasury now that Geithner is finally leaving. Paul Krugman isn't in the cards. Neither is Joseph Stiglitz or Dean Baker.

A second term means some new Cabinet appointments for President Obama, including at the Treasury. After four pretty grueling years, Secretary Timothy Geithner has made it clear he will be leaving Washington.

White House press secretary Jay Carney said last week that Geithner would be staying on through the inauguration. He's also expected to be a "key participant" in "fiscal cliff" negotiations.

The Treasury secretary was arguably the most important Cabinet post in the first Obama administration. Secretary Geithner had wobbly banks, auto bailouts and the Great Recession on his plate. The next secretary will face big challenges too, beginning with the "fiscal cliff" and working with Republicans to craft a "grand bargain" on deficit reduction.

It's not surprising that there's been a lot of talk about Erskine Bowles as a replacement for Geithner. Bowles chaired the president's deficit reduction panel, the Simpson-Bowles commission. Speaking on Charlie Rose's show last March, Bowles outlined the content of a good budget deal.

"Any of them that don't address defense, any of them that don't address Medicare, Medicaid, Social Security and don't reform the tax code and aren't balanced in some way between that, aren't serious," he said.

Bowles was a chief of staff for President Clinton. He's also a former investment banker and is popular with Republicans and on Wall Street. But he's criticized President Obama's budget publicly while praising Paul Ryan's.

A more likely choice might be Jack Lew, the current White House chief of staff and formerly the president's budget director. In April 2011, he discussed overhauling Social Security:

"It's never really moved the debate forward for one side or another to put a plan out there. It's only really worked well when the parties come together; that's what happened in 1983," he said.

Lew worked on that 1983 Social Security fix as an aide to House Speaker Tip O'Neill. He has Capitol Hill experience and the budget expertise to tackle the big issues that are on the Treasury's plate. And he's got a good working relationship with the president.

Bowles is the Democratic Party frontman for bringing Europe's failed Austerity agenda here. He actively campaigned against progressive Democrats Annie Kuster and David Cicilline and backed hard right Republicans like Charlie Bass (NH) and Brendan Doherty (RI). Kuster and Cicilline won... but if you think that would give Obama a moment's pause, you haven't been paying any attention to Barack Obama. As I've said before, don't worry about Wall Street. They're all set-- and it hardly mattered who won the presidency or which one of the corrupt Beltway party establishments is in charge of Congress. Wall Street calls the shots. Sure, they would have loved to have had one of their own in the White House and to have placed their own little Frankenstein monster in as VP. But Obama hasn't really given them anything serious to worry about and they'll be perfectly fine with a corporate whore and investment bankster like Erskine Boyce Bowles-- currently on the boards of General Motors, Morgan Stanley, Facebook, Norfolk Southern and North Carolina Mutual Life Insurance-- as Secretary of the Treasury. As Ben White and Anna Palmer said, Wall Street might not be getting their "dream candidate," but they certainly know how to work with Obama to further their own interests-- even if he did call them "fat cats" once. Over the weekend William Cohan, who thinks Obama should appoint Bowles, made a good case against Bowles (and Obama):

When U.S. voters elected Barack Obama president in November 2008, many of us were convinced he would make a top priority of reforming Wall Street, which had just almost succeeded in bringing down our way of life through greed and lack of accountability.

Despite the fact that Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) were among Obama’s top 10 financial backers in 2008, we were hopeful we would see a change in the system whereby bankers, traders and executives were rewarded every day to take huge, asynchronous risks with other people’s money.

We also believed that Obama wouldn’t succumb to the backroom maneuverings of the plutocrats and behind-the-scenes money men-- such as former Treasury Secretary Robert Rubin and former Deputy Secretary Roger Altman-- who were busy advocating a quick return to the status quo and looking to move their friends into positions of great importance in Obama’s Cabinet.

It turned out we were either naive or stupid to think that when candidate Obama spoke about “change you can believe in,” he was including Wall Street.

In ways we may never fully understand, Rubin quickly cast his spell on Obama. Before long, Rubin proteges were appointed to the three most important economic positions in the new administration: Timothy Geithner as Treasury secretary, Lawrence Summers as national economic adviser and Peter Orszag as director of the Office of Management and Budget. For good measure, the administration named Mary Schapiro, the head of the Financial Industry Regulatory Authority, Wall Street’s dysfunctional self-regulatory organization, as chairman of the Securities and Exchange Commission.

Summers has gone back to Harvard University, and Orszag is now at Citigroup (and writes a column for Bloomberg View). Geithner and Schapiro will be leaving Washington shortly. Yet other Rubin acolytes-- Gene Sperling, now the national economic adviser; Jack Lew, Obama’s chief of staff; and Michael Froman, the president’s top international economics adviser-- are still very much in residence at the White House.

What did these men and women collectively achieve during Obama’s first term? A remarkably Wall Street-friendly set of policies. To recap, the big banks continued to be bailed out; the weak Dodd-Frank financial reform act continues to get watered down as its specific rules are hammered out; not one Wall Street trader, banker or executive has been held criminally liable for actions leading up to the financial crisis; and the Standard & Poor’s 500 (SPX) has doubled since its nadir in March 2009. The Federal Reserve also did its part: pumping trillions of dollars into the capital markets to keep interest rates at rock-bottom levels (a gift to Wall Street and a tax on savers).

A pretty amazing list of favors, if you think about it. Yet Wall Street clearly thinks it is owed even more. The antipathy between the financial sector and Obama has never been greater. Eight of Republican challenger Mitt Romney’s 10 top donors in the election were Wall Street firms. (Meanwhile, the markets responded to Obama’s re-election with a 400-plus point drop.)

So, President Obama, the time has come for you to do in your second term what many people hoped you would do in the first: Institute meaningful reform on Wall Street. An essential first step is to sweep out the remaining vestiges of the Rubin-Altman nexus. Bring in a new group of people who not only understand how Wall Street really works but also have dedicated much of their lives to changing it.

And then Cohan said Bowles is the right guy for the job. He's wrong-- completely wrong. Bowles is one thing-- another Wall Street shill who would continue Obama's awful Wall Street policies. If you expected anything more, you got played. I live in California and it was not just easy for me to vote against Obama last week, it gave me great pleasure.

How About Real Change And Hope In Obama's Second Term-- Like Bob Reich For Treasury Secretary?

I was just watching President Obama speaking at UNLV. I'm not exactly an alumnus but I did take courses there-- and write for the student newspaper-- when my van broke down in Vegas and I couldn't afford to repair it and leave town. That was a lot of years ago. Today the President was saying so many of the right things-- things Romney will never say-- like "no one who fights for this country should ever have to fight for a job when they come home." I heard that while I was putting on my socks upstairs.

And earlier this week, on Air Force One, when a reporter pressed Jay Carney, the Press Secretary on whether Obama would support a temporary extension of the Bush tax cuts for the rich, Carney said: "He will not. Could I be more clear?"

But the problem is that while he talks like a real Franklin and Eleanor Roosevelt Democrat, he hasn't governed like one. Remember he once said he's a Blue Dog Democrat? That's what he governed as-- starting with his first absolutely horrendous appointments-- like Wall Street operatives Rahm Emanuel as Chief of Staff, Larry Summers as Director of the National Economic Council and Tiny Tim Geithner as Treasury Secretary. A high school teacher of mine once told the class that no matter who the president is, Wall Street always gets one of their own as Treasury Secretary. That started with Alexander Hamilton.

FDR's first Treasury Secretary was William Woodlin, a Republican hereditary industrialist who had served on the Fed starting in 1927. Henry Morgenthau, Jr. took over in 1933 when Woodlin resigned due to an illness than killed him within months-- and he served the whole time Roosevelt was president. He was born into wealth; his dad was a NY real estate mogul. Although conservatives were enraged that Roosevelt appointed him, Morgenthau was a vocal anti-Keynesian and was known for utterances like "We have tried spending money. We are spending more than we have ever spent before and it does not work. [...] After eight years of this administration we have just as much unemployment as when we started [...] and an enormous debt to boot!" He worked hard to persuade FDR to give up on deficit spending, although in 1937 he finally got Roosevelt to focus on balancing the budget through major spending cuts and tax increases... and brought on the 1937 Recession.

After Morgenthau, Truman appointed one of his closest friends, Fred Vinson-- who had served as head of the inflation-fighting Office of Economic Stabilization. He wasn't really a Wall Street person but he was soon kicked upstairs to serve as the Chief Justice of the Supreme Court and was followed by John Wesley Snyder, an Arkansas banker. He was the last Secretary of the Treasury that wasn't an actual Wall Street person.

Eisenhower's first Treasury Secretary, George Humphrey was a conservative steel industry tycoon was against aid to the poor and fought for a balanced budget, tight money, tax cuts to the rich that would "trickle down" and drastically curbing federal spending. Next came Robert Anderson, a Texas investment banker and alcoholic who was trial and convicted of tax evasion and of laundering huge sums of money for drug dealers in a typical Ayn Rand-like offshore banking scam that Republicans admire so much. He was disbarred and sentenced to prison.

The next president was JFK but he wasn't going up against Wall Street either-- quite the opposite. His Secretary of the Treasury was C. Douglas Dillon, another hereditary one-percenter and notorious Wall Street investment baker (Dillon, Read & Co.)... with pretensions towards Scottish nobility. He was close personal friends with every high end financial predator in New York. LBJ's first Treasury Secretary was Henry Fowler, a conservative who's primary interest was an immense tax cut, primarily for the rich. Upon leaving the cabinet he was rewarded with a partnership in Goldman Sachs. He was followed by Joseph Barr, who was serving as the Chairman of the FDIC and the Undersecretary of the Treasury before LBJ appointed him Treasury Secretary for the last month of his presidency. He went on to head the American Security and Trust Company and then the Federal Home Loan Bank of Atlanta.

After Barr, they could have just moved the Treasury Department to Wall Street itself. Nixon appointed Mormon bankster David Kennedy, followed by Texas con-man John Connally-- a paid shill for right-wing Texas oil tycoons Sid Richardson and Perry Bass-- and Bechtel CEO George Shultz, whose policies brought on one of the worst inflation spirals in contemporary American history. He was followed by William Simon (who Ford held onto once Nixon resigned in disgrace). Simon, a venture capital predator and Wall Street bankster with a series of shady companies, was an Ayn Rand fanatic, "free market" extremist and was responsible for the revitalization of the term "czar" in American politics (having been Nixon's "energy czar"). Carter had two Treasury secretaries, Michael Blumenthal, a NYC corporate guy, and William Miller, a former Textron CEO and Federal Reserve Chair.

The came the veritable bankster boardroom brought to you by the most Wall Street-centric series of presidents since the Roaring '20s: Reagan, Bush I, Clinton, Bush II and Obama. Reagan gave us Merrill Lynch chairman and CEO Donald Regan, the Carlyle Group's (and bin-Ladens') James Baker, and, briefly Peter McPherson, later Chairman of Dow Jones (and the man who made sure Rupert Murdoch could buy the Wall Street Journal). George H.W. Bush, from a Wall Street bankster clan himself, named Nicholas Brady (former Chairman of the Board of Dillon Read & Co.). Clinton found one of the most conservative Democratic taxcut fanatics around, ex-bankster, Senate Finance Committee Chair & all around Wall Street patsy Lloyd Bentsen. When Bentsen resigned, Clinton appointed an outrageous bankster, Frank Newman who had worked for (and still served) Citicorp, Wells Fargo, and BankAmerica. (After his turn at Treasury-- 4 weeks-- he went to work first for Bankers Trust and then as CEO of Shenzhen Development Bank.) Then can the really bad guys, Wall Street's dream boys, Robert Rubin (Chairman of Goldman Sachs before Treasury, Chairman of Citigroup after Treasury) and Lawrence Summers, an academic who has always groveled in the face of a few bucks held under his nose. His purely Wall Street-oriented deregulation policies were as key to the current worldwide economic meltdown as were Phil Gramm's.

Bush II gave us Alcoa Chairman Paul O'Neill, CSX Transportation's CEO and Chairman of the Business Roundtable John Snow, who later went on to head Cerberus Capital Management, and finally-- and worst of all-- notorious bankster Henry Paulson, CEO of Goldman Sachs. Obama couldn't have done worse than Paulson-- but Geithner, former President of the NY Federal Reserve Bank, isn't much better.

If the mistakes Obama made in his first term don't saddle us with Mitt Romney-- in other words, if Obama gets a second term-- he can do something really historic and become a real agent for Change (and Hope). That would be appointing former Labor Secretary Robert Reich Treasury Secretary. Wall Street might grumble a little commit mass suicide, but Reich, as you can see in the video above, would use the office in a way it has never been used before-- for the good of ordinary working American families. I bet the 18 Members of Congress who proposed raising the minimum wage from $7.50 to $10/hour this week would support the nomination!

In introducing a key chapter, "Tax Cuts Aren't A Solution To Every Problem" in his book, The Fifteen Biggest Lies About The Economy, Joshua Holland quotes Mitt Romney explaining a Republican alternative to stimulating the economy. Rather than the government spending money on public works and rather than putting money in consumers' pockets by increasing the minimum wage, the GOP wants to give more tax cuts to the wealthy. "There are two ways," says Willard, "you can put money into the economy, by spending more or by spending less. But if it's a stimulus you want, taxing less works best. That's why permanent tax cuts should be the centerpiece of the economic stimulus." As Holland points out, he's wrong, gigantically wrong. In fact, he writes, "it's difficult to know where to start deconstructing conservative rhetoric on taxing and spending. This is such a central part of their worldview, and it’s informed by a whole slew of falsehoods. In order to make sense of it all, it’s necessary to understand four key concepts behind the Right’s rhetoric." Here are Holland's 4 key concepts that unwind the basis of the Republican Party ideology of selfishness and greed:

1. Shrink the Government and Drown It in a Bathtub

Conservatives believe in small government as an ideological end unto itself. They believed Reagan when he said, “Government is the problem,” and they think that shrinking that problem down so that it becomes small enough, in the words of antitax activist Grover Norquist, to “drown in a bathtub,” is a virtue.

They naturally tend to assume that their political opponents must take the opposite view: that liberals want to expand government and raise taxes because they prefer bigger government and higher taxes. That’s a serious distortion; progressives see policy goals and aren’t afraid of pursuing solutions to problems through government, the private sector, or a combination of the two. When a real problem can’t be addressed by the private sector-- poor kids lacking health insurance is a perfect example-- then we look to the public sector for the answer.

And then we pay for it, rejecting the reckless “borrow-and-spend” approach that George W. Bush used to turn a tidy budget surplus left by Bill Clinton into a deep sea of red ink. The bottom line is that progressives and liberals couldn’t care less about how big or small the government may
be in the abstract, only whether it functions well and solves the problems we ask it to address.

2. Conservative Programs Don’t Count as Wasteful Spending

Despite conservatives’ ideological devotion to limited government, make no mistake that when they say “government,” they are talking about limiting corporate regulation and reducing the amount of money spent on the relatively meager social safety net that takes the hard edges off America’s brand of unbridled “turbo-capitalism.” In practice, almost everybody, from across the political spectrum, is happy to spend money and expand government in pursuit of his or her own objectives. Spending projects are wasteful “pork” only when they’re in another lawmaker’s district. Republicans rarely object to spending tax dollars on the military, our intelligence agencies, law enforcement, or border security, to name a few. To state the obvious: these things cost money, too-- a lot of it.

3. The Poor Don’t Pay Taxes

Contrary to the right-wing narrative, everyone pays taxes. Conservatives insist that the tax system is highly progressive and that anyone who suggests otherwise is just whining. Rush Limbaugh put it this way: “The bottom 50 percent is paying a tiny bit of the taxes, so you can’t give them much of a tax cut by definition. Yet these are the people to whom the Democrats claim to want to give tax cuts. Remember this the next time you hear the ‘tax cuts for the rich’ business. Understand that the so-called rich are about the only ones paying taxes anymore.”

That’s true, however, only when you do a little sleight of hand. You have to look at the federal income tax in isolation and then pretend that it represents the government’s entire take. It’s true that the bottom 40 percent of U.S. households don’t pay much in federal income taxes. And, according to a Congressional Budget Office (CBO) analysis, the wealthiest 1 percent do pay more in federal income taxes than the bottom 90 percent combined.

Yet that’s a far cry from the claim that the “poor don’t pay taxes.” Rushbo won’t tell you, but the CBO also said that if you look at state and local taxes, the top 1 percent of Americans paid 5 percent of their incomes, while the bottom 50 percent (many of them among those who paid no federal income taxes) shelled out 10 percent, twice as much proportionately. In addition, the CBO found that the bottom 80 percent of the pile paid around 9 percent of their incomes in Social Security taxes, while the top 1 percent paid only 1.6 percent of theirs. After the income tax, Social Security taxes represent the largest share of the federal take.

A 2009 study by the nonpartisan Institute on Taxation and Economic Policy looked at state taxes (including sales taxes) and concluded, “Nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. That is, when all state and local income, sales, excise and property taxes are added up, most state tax systems are regressive [emphasis theirs].” The top 1 percent of earners paid around 5 percent of their incomes in state and local taxes, while the poorest fifth of the population paid almost 11 percent of theirs.

When the institute looked at excise taxes-- on gas, cigarettes, alcohol, and other goodies-- they found that the “average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.7 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers.

When you add it all up-- state and local taxes, federal taxes, and excise fees-- it turns out that the rich, the poor, and those in between all end up with about the same tax rate. That’s the conclusion of a 2007 study by Boston University economists Laurence J. Kotlikoff and David Rapson. They summarized, “The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.”

That brings us to an important point: It wasn’t always that way. According to a 2010 study by Wealth for the Common Good, an organization of deep-pocketed progressives, “Over the last half-century, America’s wealthiest taxpayers have seen their tax outlays, as a share of income, drop by as much as two-thirds. During the same period, the tax outlay for middle-class Americans has not decreased.” The study found that the nation’s “highest earners-- the top 400-- have seen the share of their income paid in federal income tax plummet from 51.2 percent in 1955 to 16.6 percent in 2007, the most recent year with top 400 statistics available.” Between 2001 and 2008 alone, tax cuts for the wealthy cost the U.S. Treasury $700 billion.

4. Tax Cuts for the Rich Will Also Help the Rest of Us

Republicans use the lie that the poor don’t pay taxes to justify big cuts for the wealthy. The bad news is that those cuts raise taxes for everyone else. You won’t read that in the legislation, but it’s the real-world result of cutting taxes without taking on the politically unpopular task of identifying services to be cut.

Even when revenues drop, people expect the cops to come when called and the streetlights to burn. Budgets become stretched, and communities tighten their belts-- perhaps laying off some workers. But then-- and this is key-- state and local governments also make up much of the shortfall with higher fees for various services, higher tuition at public colleges, and increases in sales, excise, and property taxes, all of which fall disproportionately on the poor and the middle class.

Most government spending is locked in-- for Social Security and Medicare, the defense budget, and a host of other programs that would be politically unpopular to cut. The Right has done an excellent job of pushing the notion that they’re for tax cuts, but remember that they are talking about corporate taxes, capital gains taxes on investments, and taxes for the top earners. When those revenues dry up, the rest of us have to pick up the tab.

So keep in mind that the Right actually loves to raise taxes, just as long as they’re hiked on the backs of ordinary working people. Barack Obama’s first budget made the Bush tax cuts permanent for every couple making less than $250,000 and every individual taking in less than $200,000, while allowing those cuts targeted at the richest Americans to expire. This effectively cut the tax bills of about 98 percent of the population. The response from House Minority Leader John Boehner, a long-time advocate of tax cuts? “The era of big government is back, and Democrats are asking you to pay for it,” he told the Washington Post.

Is it time for Tiny Tim Geithner to cash in on all he's done to make the banksters happy (and richer)?

Know anyone who could be a bigger friend to the
banksters? That could be our next Treasury secretary.

"I feel the time has come for me to start cashing in for all I've done to help the big boys in the financial sector live long and prosper."

-- what Treasury Secretary Tim Geithner might have said in
response to reports yesterday that he's preparing to step down

by Ken

The reports, circulated by not exactly fly-by-night sources like Bloomberg and the Wall Street Journal, indicated that the Tinyman "is considering stepping down soon after policy makers agree to raise the government's borrowing limit, a person familiar with the matter said." As Robert Kuttner notes in an American Prospect online piece, "So Long, So Long, and Thanks from All the Banks": "That might be a long time from now given that the Republicans could agree to temporary extensions to maximize their leverage."

Naturally, the Tinyman promptly denied the rumors, telling Bill Clinton ("while sharing the stage at a Clinton Global Initiative event"): "I live for this work. I’m going to be doing it for the foreseeable future." Are you starting to feel a bit teary? (If not, you may in a moment, but not for the same reason.) As Kuttner also points out, "His status as a lame duck would undermine his authority on a variety of fronts, from the debt-ceiling negotiations to implementation of Dodd-Frank." But if our Tim has given any thought to his bargaining position, wouldn't that be a first for anyone in the Obama administration?

I read Kuttner's American Prospect while vaguely gathering my thoughts on the subject, and discovered it was no longer necessary to gather my thoughts. Here are his:

Well, good luck and good riddance to Geithner. The problem, given Obama’s own extreme caution and the Republican ability to block anyone who’d be a tough regulator of Wall Street, is that his successor is likely to be even worse.

Geithner’s main role in the great financial crisis was to shore up the large Wall Street banks without demanding any serious systemic reform in return. The window of opportunity in the spring of 2009 came and went with several zombie banks being propped up with hundreds of billions of taxpayer dollars and trillions of dollars in advances from the Fed, but no progress toward the too-big-to-fail problem, much less any major change in the bankers’ business model that caused the collapse.

Geithner’s main function in crafting what became the Dodd-Frank Act and the lobbying around its key provisions was to argue for weaker rather than stronger ones. Backbenchers in Congress like Senators Merkley, Levin, Kaufman, Reed of Rhode Island, and Franken were instead the advocates of strong reforms. Geithner explicitly opposed many efforts by progressive senators to toughen the bill, as when he opposed a ban on “naked” credit-default swaps (the Dorgan Amendment) or setting explicit limits on the market share of large banks or returning to the strict separations between speculation and investment of the Glass-Steagall Act. Obama, to Geithner’s great discomfort, invoked that reform as the “Volcker Rule,” but then Geithner successfully fought to undermine a serious version of it.

One of Geithner’s first administrative acts in making a decision to implement Dodd-Frank was to water down a key provision on derivatives so that any derivative involving foreign currency (a huge part of the derivatives market and Wall Street profits) was exempt from Dodd-Frank’s sunshine and anti-manipulation provisions. The Wall Street Journal piece on Geithner’s likely departure quotes Jim Vogel, a strategist at FTN Financial Capital Markets, as saying, “Since 2009, the capital markets have gotten very comfortable with Secretary Geithner’s steady approach to both the debt markets and financial policy.”

Well, yes, why wouldn’t they be very comfy? Wall Street has returned to pre-collapse profitability without any fundamental change in its business model. Overly complex financial products and proprietary trading, too-big-to-fail banks, and immense Wall Street influence over policy continue to undermine the recovery and pose the risk of a second collapse.

You can see the lingering influence of an unreformed system in the Greek mess. The European authorities are putting Greece through the austerity ringer, in part to protect banks that are major holders of Greek bonds. But the same banks are also holders of credit-default swaps. Hedge funds use swaps to bet on a Greek default, putting the banks at double risk. So a restructuring of Greek debt, of the sort used in the case of much larger Latin American countries in the 1990s, becomes prohibitively expensive.

Geithner’s legacy will be this: He took a historical moment that offered a rare and overdue chance for systemic financial reform and used it instead to paper over the cracks in a dangerous system.

Now, as to why you might be moved to tears, Kuttner has already said it: "The problem, given Obama’s own extreme caution and the Republican ability to block anyone who’d be a tough regulator of Wall Street, is that his successor is likely to be even worse." This morning a colleague was gathering "insider" speculations, and came up with:

* Ben White, Politico "Morning Money": argues first "Why [JPMorgan CEO Jamie] Dimon May Replace Geithner," then "Why Dimon Won't Replace Geithner," then turns to assorted other possibilities: OMB Director Jack Lew, Clinton White House chief of staff Erskine Bowles, current WH COS Bill Daley {"though Daley has the Wall Street problem" --d'oh!), former Deputy Treasury Secretary Roger Altman ("considered a strong candidate though he too is very much enmeshed in the investment banking culture"), and outgoing FDIC Chair Sheila Bair ("would have more credibility with progressive groups" -- well, scratch her from the list).

* Ben White again, with Carrie Budoff Brown, yesterday evening at Politico: Bowles, Altman, Dimon, Daley, and Bair again, plus now New York City Mayor Michael Bloomberg and GE CEO Jeff Immelt -- in case you thought it couldn't get worse.

* Mark Landler, NYT: Bowles, Altman, Fed Vice Chair Janet Yellen, National Economic Council director Gene Sperling.

* Kuttner is intrigued by the idea of Bair, "Geithner's nemesis," and argues that "Obama could send a salutary signal" by appointing her.

The odds of that happening, of course, are infinitesimal. He will probably name someone even closer to Wall Street, if that's possible.

As for Bair, she has told friends that she is likely to teach or go to a think tank, write a book, and speak out. She has no plans to cash in by going to K Street or Wall Street, where she could pull in a salary of $5 million to $10 million.

Let's see where Tim Geithner goes.

Now are you crying?

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Oops, the Bushbailers seem to have fucked up that attempt at limiting executive pay! Oh well, it was probably an accident -- stuff happens

by Ken

It's a pretty state of affairs when you're left wondering whether your government's latest fuckup is the result of inattention (we can't expect that nice Secretary Paulson to dot absolutely every "i" and cross every single "t," now can we?), incompetence, or careful sabotage.

Let the Washington Post's Amit R. Paley tell the basic story:

Executive Pay Limits May Prove Toothless
Loophole in Bailout Provision Leaves Enforcement in Doubt

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

Oops!

It gets rather complicated from here, having to do with what enforcement mechanisms the Treasury Dept. has, and perhaps more pertinent how much will the Treasury has to enforce any restrictions -- the Bush regime was pretty strenuously opposed to putting any in the bailout law. Of course it's also possible that none of this matters now.

I think it's only fair that, after causing those execs who got that $335B such anxiety over the possibility that they couldn't boost their pay, they should be encouraged to toss an extra $100K or so into their pay envelopes, just to compensate them for the stress.


AND SPEAKING OF WHO GOT THAT $335B . . .

Say, are we just supposed to accept that we're not allowed to know who they are, and how much they got, and get get over it? While the Bushbailers were planning the giant dish-out to their Wall Street cronies, were they so busy fucking up the executive-pay-compensation thing that they somehow forgot to make it mandatory that such a list be made public?

I mean, somebody knows, don't they? The Bushbailers didn't just, like, stand out on a corner handing out hundreds of thousands of dollars, did they? Didn't the recipients at least have to, you know, sign something? Surely somebody somewhere has a shoebox filled with the receipts? Someone on the gov't payroll could make a list of all those scraps of paper, wouldn't you think?

Unless of course we're not supposed to know?

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How do we know that Treasury knows that this tax giveaway was illegal? From the way they sneaked it out the back door under cover of the bailout to-do

Sen. Chuck Grassley (right), ranking Republican on the Finance Committee, is reportedly "particularly outraged," and Chairman Max Baucus (left) isn't happy either. But everyone is -- shhh! -- whispering.

"We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

-- tax attorney Lee Sheppard, quoted by Amit R. Paley in "A Quiet Windfall for U.S. Banks," in today's Washington Post

by Ken

Obviously you can't turn your back for a second on our pals the corporate predators -- or on their bosom cronies in the Bush regime. In this case we're talking about the U.S. Dept. of the Treasury Inc., under the splendid direction of Treasury Sec'y (and Bailout Czar) Hank Paulson. It turns out that Capitol Hill insiders have been steaming for more than a month now over a breathtaking stunt pulled ever so quietly by the department's tax policy people on Sept. 30. As Post reporter Paley reports:

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

As far as the Treasury elves are concerned, they were just engaging in a wee bit of administrative fine tuning, as authorized within the very bit of tax code they tinkered with: section 382, described as "so little-known that even influential tax experts sometimes draw a blank at its mention." It's a 1986 congressional attempt to fix a loophole whereby, as I understand it, companies doing mergers were simultaneously acquiring shell companies with no value except tax losses in order to lower the tax bite.

And it turns out -- surprise! -- that the usual klatsch of corporate predators has been targeting section 382 since 1986, on the ground that it's unhelpful to corporations doing mergers by depriving them of this clever gimmick for lowering the tab. Which, you know, was kind of the idea.

Oh, the usual tax and legal "experts" whose philosophy is that rich people and corporations have the right to do any damn thing that comes into their larcenous heads say that sure, the Treasury Dept. had the right to do this, you betcha. The rest of the business-law community is saying, basically, WTF???

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

[Just to be clear -- because it's easy to misread -- Mr. Yin is saying that Treasury now, not Congress back in 1986, is essaying this "backdoor way of providing aid to banks."]

Reporter Paley did find "several tax lawyers, all of whom represent banks," who think Treasury action of Sept. 30 was legal. But "more than a dozen tax lawyers interviewed for this story -- including several representing banks that stand to reap billions from the change -- said the Treasury had no authority to issue the notice."

The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury's work seemed focused almost exclusively on the bailout.

"It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."

As if the whole thing didn't smell bad enough, there is additional concern over the timing of the administrative change:

The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.

Ooh!

Iowa Sen. Chuck Grassley, ranking Republican on the Finance Committee, is reportedly "particularly outraged," and ordered his staff to get some answers from Treasury.

In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from [top Treasury tax policy official Eric] Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.

But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.

"We're all nervous about saying that this was illegal because of our fears about the marketplace," said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. "To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."

So everyone is tiptoeing around, afraid even to talk too loud, let alone do anything about the rank administration abuse of power -- yet another illustration, as if it were needed, why a bailout supervised by Treasury Secretary Paulson is more likely to resemble a corporate giveaway. Which brings us back to Lee Sheppard:

Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.

"It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

I'm thinking we need to get the attention of the corporate predators and their allies with a new set of laws -- or, better, not new laws, but new administrative applications of existing statutes, drawing in particular on those concerning treason and attempting to overthrow the government. You know, the sort of thing that involves the death penalty -- and maybe confiscation of all assets? Do you think that would get their attention?

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UPDATE: AND KEN ISN'T THE ONLY ONE PISSED OFF

I got a press release from California Assemblyman Ted Lieu that people angry about this latest outrage might be interested in digesting:

“Today we learned the US Treasury Department—without any apparent legal authority-- made a sweeping change to the tax code that gave US Banks a $140 billion windfall, and then tried to hide the action from Congress. This is unacceptable and undemocratic-- we live in a country of laws, not the Wild West. The Treasury Department’s action is tantamount to stealing from taxpayers. Two immediate actions must happen to restore trust and to provide justice.
 
“First, Treasury Secretary Henry Paulson should resign. Since last year, he has repeatedly misjudged the scale of the foreclosure crisis. Then he wakes up one morning and realizes we need an immediate $700 bailout, with much of that money going straight to the Wall Street firms that have been largely responsible for the financial meltdown. Now his Department has resorted to stealing from the taxpayer to benefit the banking industry. Who knows how much other damage he can cause from now until January 20th. For the good of the Department and of our nation he should resign-- he has failed us enough times. 
 
“Second, banks must give back their windfall. The best way for them to do this is by modifying loans to keep people in their homes. Since last year I and numerous consumer groups urged the banks to modify loans. We told them if they failed to modify loans and stem foreclosures, the situation was going to explode. Unfortunately, the banks failed to listen and now many of them have disintegrated. The remaining banks still standing and who have received this windfall should immediately give it back by using the windfall money to help modify loans and prevent further foreclosures.
 
“California stands to benefit from the banks giving back their windfall because one-third of the nation’s foreclosures occur in California. It is time the banks start giving back to the state that has in the past given them so much profit. It is time for the banks to help taxpayers, rather than take from taxpayers.”