The idea roused the interest of Majority Whip Richard Durbin (D-Ill.), who continued the improvised sketch before the empty chamber.

“I think it’s been a full two weeks since we’ve had an ACORN amendment on the floor,” Durbin said. “So clearly it’s time for us to move to one of the highest priorities many Republicans see in the nation. I wonder if we ought to consider more ACORN amendments in hopes of moving legislation.”

To be fair to Republicans, they insisted on an ACORN amendment as part of the unemployment bill for only a few weeks, dropping that demand more recently in favor of provisions to end the Wall Street bailout and fund the unemployment insurance extension using unspent stimulus money.

A cloture vote on the extension bill is scheduled for 12:15 p.m. today.

Cantwell ripped into the financial reforms put forth by Geithner and the Obama administration as “appalling” for including alleged loopholes and exemptions for large financial institutions in legislation overhauling the regulatory framework for the nation’s top firms.

“I’m not sure,” Cantwell said during an appearance on MSNBC this morning when asked by host Dylan Ratigan why Geithner still has a job.

And yesterday on NBC’s “Meet the Press:”

“What the Treasury secretary basically said was that, yes, banks should take more risks and we should continue the loopholes,” she said. “And that’s really appalling because right now, we know that lack of transparency has caused this problem with the U.S. economy, and Wall Street is continuing, one year later, with the same loopholes.”

It won’t be easy for the Obama administration to push through legislation if it can’t even convince its own party to support it.

Treasury Secretary Timothy Geithner (WDCpix)

Appearing before a House panel on Thursday, Treasury Secretary Tim Geithner made his best pitch for legislation granting the White House broad new powers to seize Wall Street firms when their collapse might torpedo others in the industry.

It didn’t go so well.

Image by: Matt Mahurin

“Mr. Secretary, I’m not a man that fears this administration or you,” Rep. Paul Kanjorski (D-Pa.) told Geithner. “But I do fear the accumulation of power exercised by someone in the future that can be extraordinary.”

Rep. Brad Sherman (D-Calif.) echoed those concerns, arguing that the bill represents “the most unprecedented transfer of power to the executive branch to make decisions about both spending and taxes in history — all without congressional approval.”

The tone of the comments could foreshadow a tough road ahead, not only for the White House, but for Financial Services Chairman Barney Frank (D-Mass.), who introduced legislation this week that grants the Treasury’s request to broaden the president’s “resolution authority.” The bill is one of the final pieces of the finance-reform puzzle that Frank has been putting together all year. But by conceding most of the administration’s requests, the Massachusetts Democrat — who asked no questions of Geithner Thursday — has riled others on his panel, who want to see more taxpayer protections in the bill.

Frank’s proposal would create an oversight commission to monitor and regulate Wall Street’s investment houses and other non-bank institutions to ensure that they’re on solid footing. Federal regulators could, for example, force companies to increase capital reserves or decrease the amount of debt they’re holding, if the scenario was deemed a threat to topple the firm.

The bill would also empower the White House to swoop in and dismantle failing Wall Street institutions in order to minimize the impact on the finance system as a whole — a strategy modeled on the authority of the Federal Deposit Insurance Corporation to intervene when commercial banks are threatening to fall.

To protect taxpayers, Frank’s bill aims to have failed-company shareholders and creditors cover the cost of the government help. If more money is needed, taxpayers would initially pick up the tab, to be reimbursed later by an after-the-fact tax levied against other large Wall Street institutions that would presumably benefit from the stabilizing effects of the government intervention.

Supporters maintain that the proposal does not empower bailouts at all, but would simply allow the government to manage the deaths of failed companies so they don’t drag down the financial system with them — a kind-of controlled euthanasia designed to protect consumers from the hubris of the finance industry.

“If we do have to step in, it will be very painful for those companies” Frank told MSNBC Thursday. “They will be put out of business. The CEOs will be fired. Shareholders will be wiped out. We are not going to have a situation where people can expect to be bailed out and live happily ever after.”

Geithner, for his part, denied that the proposal authorizes the White House to tap federal coffers at all. Asked by Rep. Maxine Waters (D-Calif.) if the bill grants “the authority to spend the taxpayers’ money to bail them out if you deem that to be a good way of handling that situation,” the Treasury secretary answered with one word: “No.”

Yet the House bill empowers the administration to make loans, buy assets, and invest in failing institutions if regulators determine those steps are required to prevent “serious adverse effects on financial stability or economic conditions in the United States.” To do so, of course, the White House would use taxpayer funds. And no monetary limits are specified.

And while the bill aims to recover the taxpayer dollars within 60 months of the bailout, Sherman notes that the White House would also have the authority to extend that deadline indefinitely.

“It could be 60 years,” he said.

That these bailout protections are limited only to those institutions whose failure is deemed a system-wide threat is another source of criticism on Capitol Hill. Many lawmakers and finance experts contend that that stipulation creates an unfair advantage for big firms over their smaller competitors. For example, they could get capital at lower rates if lenders know they have access to some level of federal lifeline. That dynamic, critics argue, would act to promote “too-big-to-fail” institutions, rather than reining them in.

“Why should the American people have to sit out there and see us creating mammoth organizations that nobody says we have the authority to control or limit, but we have the authority to help them when they get into trouble?” asked Kanjorski.

There are still other concerns. For example, some lawmakers are attacking the proposed bailout tax on large institutions, arguing that it should be collected beforehand as a type of insurance fund, rather than imposed after a competitor goes under.

“No more TARP. No more bailouts,” said Rep. Luis Gutierrez (D-Ill.). “Let them [the companies] create the fund, the systemic risk fund, that will guarantee that the American taxpayer will no longer have to be involved should they cause such a crisis ever again.”

Geithner responded that such a system would encourage even more risky behavior from the largest companies. “If you create a fund in advance, there’s a risk you’re going to create more moral hazard,” Geithner siad. “People will live the expectation where the government will come in and protect them. We don’t want to create that expectation. That’s why we think it’s better to do it after the fact.”

Meanwhile, conservatives and representatives in the finance industry are blasting the notion that solvent companies should be forced to pay to bail out the mistakes of competitors. “Should Ford bear the costs of compensating the taxpayer for what happened to G.M. and Chrysler?” asked Rep. Jeb Hensarling (R-Texas.).

Gutierrez pointed out yet another concern: Placing such broad new powers in the hands of Treasury leaders – who often arrive directly to the job from previous positions of power on Wall Street – creates the impression of the fox guarding the hen house.

“How do we know the next secretary of the Treasury won’t be the former CEO of Goldman Sachs as they have been in the past?” he asked. “They seem to be interwoven, and that’s what the American public sees.

“They see the interconnectedness in terms of their power, their influence and always to their benefit.”

But yesterday the Obama administration was pulled more deeply into the scandal as well, after newly unveiled BoA documents suggested that both incoming Treasury Secretary Tim Geithner and incoming senior economic adviser Larry Summers had endorsed the merger as well. From The Washington Post:

Bank of America chief executive Kenneth D. Lewis told the company’s board that Federal Reserve Chairman Ben Bernanke told him “that Geithner and, in addition, Larry Summers, were both on board with the transaction,” according to Dec. 22 talking points prepared for a conference call.

Both the White House and the Treasury Department have denied that Geithner and Summers were influential in pushing the merger, even if they knew about it, the Post reported. But their involvement at any level might explain why the Obama administration’s Securities Exchange Commission was so light in penalizing BoA for a failure to tell its shareholders about $3.6 billion in bonuses Merrill was poised to pay its employees around the time of the merger. The $33 million SEC fine — which effectively charged company shareholders for the alleged crimes of company executives — was thrown out by a federal judge last month.  According to U.S. District Judge Jed Rakoff, “The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money . . . is absurd.” Rakoff has ordered a trial to be held in February.

The saga hasn’t been lost on some lawmakers. The House Oversight and Government Reform Committee has undertaken an extensive investigation into the details of the dubious merger — including those surrounding the decision to hide Merrill’s bonus payments from BoA shareholders. The committee will hold its fourth hearing on the episode this Thursday. Witnesses will include SEC Chairman Mary Schapiro, former SEC Chairman Christopher Cox, and Sheila Bair, head of the Federal Deposit Insurance Corporation.

The bank has denied all the charges, and has said it will strongly fight the lawsuits.

There’s a lot for the bank to answer to. Here’s a bit more from the suit by Illinois Attorney General Lisa Madigan, regarding the bank’s marketing tactics:

As part of Wells Fargo Home Mortgage’s marketing plan, Wells Fargo Home Mortgage utilized a computer function that purportedly permitted employees to customize Wells Fargo marketing materials to target African Americans by choosing “African American” in a pull down menu of “language” options.

If that’s true, it’s certainly a creative use of language options by the Wells’ marketing people.

And the end result of all these efforts, according to Madigan?

The lawsuit also follows a recent Chicago Reporter analysis of mortgage data submitted by Wells Fargo to the federal government. That study found that, in 2007, Wells Fargo sold high-cost, subprime loans more often to its highest-earning African-American borrowers in Chicago than to its lowest-earning white borrowers. According to the study, in 2007, about 34 percent of African Americans earning $120,000 or more received high cost mortgages from Wells Fargo in the Chicago metro area, while less than 22 percent of white borrowers earning less than $40,000 received high-cost mortgages from the lender.

So … a black borrower making more than $100,000 could be more likely than a white borrower earning, say, $35,000 to get a subprime loan? No wonder the lawsuits against Wells are flying.

The point about the suit in Illinois, and a similar suit filed by the city of Baltimore against Wells, is that all these subprime loans took a huge toll on minority neighborhoods, and devastated the cities themselves. These are dramatic, even unprecedented charges — that a major U.S. lender, a recipient of $25 billion in government  bailout money, caused lasting damage to some major American cities by deliberately targeting minority neighborhoods for risky high-cost loans. The cities are suing Wells to recover money to fix the mess that remains in neighborhoods wrecked by foreclosures.

Now Smiley has distanced himself from Wells, and teaming up with the bank for “Wealth Building” seminars won’t be on his agenda again.

But what about the rest of it? If the bank’s lending practices were fair and beyond reproach, as the bank maintains, then what happened? Why are black and Hispanic communities in some cities crumbling under the weight of so many subprime foreclosures?

Smiley may have left the stage. But that still hasn’t answered all the questions regarding Wells Fargo, subprime loans and the broken neighborhoods left behind.

When government is trying to take over health care, buying car companies, bailing out banks, and giving half the White House staff the title of czar – we have every good reason to be alarmed and to speak our mind!

Romney at the Conservative Political Action Conference in February:

I know we didn’t all agree on TARP. I believe that it was necessary to prevent a cascade of bank collapses. For free markets to work, there has to be a currency and a functioning financial system.

To be fair, in that speech Romney said that TARP should not have been used to rescue car companies. But the opposition to bank bailouts is new. Opposition to TARP has been a motivating force in the Tea Party movement, a possible reason for the softening here.

–

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We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.  Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, have vowed to pass sweeping reforms of the finance industry later this year, including the creation of a new federal watchdog designed to protect consumers from the more abusive practices of the banks. But those proposals — yet to be unveiled — face a tough road ahead considering the other controversial items left for Democrats to tackle this year, namely health reform and climate change legislation.

Dodd, for his part, shot out a statement this afternoon saying that Obama “got it right.”

Failure to act leaves our economy at risk.  We will not allow our efforts to be stalled by well financed special interests intent on keeping the status quo.

Meanwhile, the finance industry is spending upwards of $250,000 per day on lobbying and advertising to kill the Democrats’ reform plans even before they’re even unveiled, according to Common Cause, an advocate for campaign finance reform.

“Great speeches are no match for the bottomless pockets of big corporations looking to kill reform legislation,” said Common Cause President Bob Edgar. “[I]t seems corporate industries can fight back almost any public desire for change by spending enough money on lobbying and campaign contributions.”

Rep. Carolyn Maloney (D-N.Y.) has a bill that would require banks to make some of these disclosures, but with health reform and climate legislation certain to consume the rest of the year in Congress, The Times is urging federal regulators to take these steps instead:

First, banks must be barred from automatically enrolling customers in overdraft programs. This must be a service that customers opt in to — and only after they are provided full information about the fees and the penalties they will incur. These disclosure statements must meet the same rules laid out in truth-in-lending laws, since overdraft charges are essentially short-term loans.

Banks must also be required to warn customers in real time when a debit card charge will overdraw their accounts — and what fees they will incur if they still decide to proceed with the purchase.

This will require new technology. But there is almost no chance that the banks will invest in it unless they are legally required to do so.

“Until that happens, buyers beware,” The Times warns. “That cup of coffee may be even more expensive than you realize.”

Even as Congress moves to put more curbs on Wall Street excesses, the nation’s top banks are writing fewer of the campaign checks that once won them lawmakers’ attention – a sign of uncertainty in the financial industry over how large a role it should play in politics in the near future.

The top 15 beneficiaries of the TARP bailout gave $813,540 from their political action committees (PACs) to congressional candidates and party committees during the first half of 2009, according to a Washington Independent analysis of campaign finance reports filed with the Federal Election Commission (FEC). During the same period in 2007, those 15 bank PACs donated $2.1 million.

Image by: Matt Mahurin

And despite the “stress tests” that began gauging banks’ health in the winter, those that won freedom from government control did not resume their formerly torrid pace of PAC activity in the second quarter of the year. Bank PACs still tied to TARP have given 54 percent less this year than in than in the last election cycle, while bank PACs freed from the bailout have seen a 67 percent drop.

Goldman Sachs provides a dramatic example of the trend. Just two days before giving taxpayers a 23 percent profit as it repaid government bailout aid, Goldman quietly reported its political contributions for the first half of the year: $23,000, a 90 percent drop from the same period in the last election cycle.

“The erratic pattern we’re seeing suggests that the financial industry isn’t sure what’s happening to itself,” said Craig Holman, legislative representative for Public Citizen’s Congress Watch. “Different banks and different bankers just see uncertain futures, and so they’re not sure if things are improving, not sure if they should be playing a big role in politics right now.”

That uncertainty marks a stark departure from the halcyon days of early 2007, when JP Morgan Chase was staking a claim to record revenues and pouring $361,000 in PAC donations into Capitol coffers. So far this year, the bank has repaid $25 billion to the Treasury – and given just $26,000 from its PAC.

Morgan Stanley experienced the harshest drought of all. After dishing out $250,000 in early 2007, including large checks to House Financial Services Committee Chairman Barney Frank (D-Mass.) and the pro-business Blue Dog Democrats, the bank’s only PAC activity this year has been three voided checks, totaling negative $3,000.

Citigroup and Comerica, by contrast, have increased their PAC giving in the first half of 2009 even while holding onto their bailout money. Such unpredictable campaign finance decision-making, a de facto ‘every bank for itself’ approach, made sense to Center for Responsive Politics (CRP) spokesman Dave Levinthal.

“Every entity has to make its own decisions and balance them between what it perceives to be the need to lobby and what it sees as the probable consequences,” Levinthal said.

He pointed to CRP’s top 10 PAC spenders for this year, which includes four unions – a constituency most Democrats have no qualms about courting – but also the American Bankers Association (ABA), the trade group that often speaks for many of the same bailout recipients whose PACs are presently running dry.

In fact, several Democratic lawmakers who have forsworn donations from bailed-out bank PACs, such as Frank, Rep. Ed Perlmutter (D-Colo.), and Rep. John Campbell (R-Calif.) appear to make an exception for the PAC of the ABA. Its donations have risen 19 percent between early 2007 and early 2009.

“It may be that [Democrats] don’t want [banks’] money,” said Robert Stern, president of the nonpartisan Center for Governmental Studies. “It may be that most congressmen are saying, ‘not now, guys’.”

Exhibit A in Stern’s theory may well be Senate Banking Committee Chairman Chris Dodd (D-Conn.), whose struggles to dissociate himself from the industry he regulates were renewed last week after testimony suggested that he knew benefits were in the offing from Countrywide’s “VIP” mortgage program.

Dodd’s PAC received $2,000 from Goldman Sachs in January, before the senator vowed to stop taking donations from the PACs of bailed-out banks.

And lawmakers are not alone in fearing a public and media backlash from Wall Street campaign contributions. Individual bank employees donated 97 percent less in the first quarter of this year than in the same period in the 2008 election cycle, as the Independent reported in April.

“The last thing I want to do is wake up one morning and see our PAC check being burned on C-SPAN,” one wary bank lobbyist told Newsweek in the spring.

The sharpest declines in PAC giving, however, did not occur at banks with the gravest public relations problems. Citigroup gave more in donations even as its CEO was facing accusations of lying to Congress, while JP Morgan was giving less despite its CEO’s cozy relationships with senior Democrats.

The 15 banks examined by the Independent for its analysis come from the Treasury Department’s monthly lending survey of the top 20 TARP recipients. Six banks were excluded due to lack of PAC participation or sufficient FEC data.

If these banks are retreating to their political corners, then – becoming “fiefdoms” instead of one “monolithic” industry, in the words of Campaign Legal Center policy director Meredith McGehee – what happens when the economy recovers? Will the capital once again see spendthrift banks shower lawmakers with cash?

“Come September, I think we’ll be in a more traditional pattern,” McGehee said. “If you want anything done by next year, and you don’t start working on it now, you’re behind the eight ball.”

Stern also predicted resurgence in bank PAC activity by the end of this year, while Columbia Law School professor Richard Briffault suggested that donations could remain low for the rest of the 2010 election season thanks to Democrats’ broad advantage in national polling.

“In 2006 and 2008,” Briffault said, contributions rose because “those were very dramatic years. There was a lot of fighting for control of Congress.”

Three factors likely to push bailed-out banks back into PAC giving this fall come in the form of existing legislation. Frank plans to take up the Obama administration’s proposal for a consumer financial products safety commission in September, a bill beefing up shareholders’ role in executive compensation is on track for Senate action in the fall, and overall financial regulatory changes could come to a final vote before 2010.

Indeed, McGehee observed a climate of brewing interest among Washington interest groups of all sizes. “This conversation is happening in every room around town: ‘How do we get our thing done between now and Memorial Day?’” she said.

“That’s not necessarily a good thing for the American people.”

Here are the numbers:

So far this year, the top six U.S. banks have set aside $74 billion to pay their employees, up from $60 billion in the corresponding period last year.

Not surprisingly, this development has sparked plenty of outrage:

The increase in set-asides for employee pay has raised the ire of Washington, where lawmakers denounced financial leaders for returning to old habits and vowed to enact measures governing executive compensation.

“It strengthens our commitment to getting legislation passed,” Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, said in an interview Wednesday, adding that a committee vote on a bill to increase oversight of Wall Street pay has been scheduled for Tuesday. “The amounts are troubling.”

Troubling is one way to put it. There are two big problems with Wall Street compensation that looks out of line with the nation’s grim fiscal reality. First, unemployment keeps rising and the prospect of a jobless recovery appears more likely every month. If ever there were a recipe for Main Street resentment, this would be it: jobless Americans watching the traders and executives they blame for the crisis raking in huge paychecks. No nuance here.

Second, as Clusterstock points out, when Goldman Sachs reports blowout numbers, as it just did — a record $3.4 billion quarterly profit — and Morgan Stanley records a $1.2 billion loss, analysts tell Morgan Stanley to take more risk.

It’s all clear. The fear is not insolvency. That’s long gone. The fear is not capturing enough upside.

At Time, Justin Fox explains that there are more substantive reasons to criticize Goldman or JPMorgan Chase than just the profits:

The teams at Goldman Sachs and JPMorgan Chase avoided giant missteps in the lead-up to last fall’s panic and are now wresting market share from wounded competitors and raking in billions. They’ve already paid back the bailout funds they got in October, which means they’re exempt from compensation limits and can disburse their gains to employees in the form of titanic end-of-year bonuses. That’s how capitalism is supposed to work, right?

Well, yeah, except that Goldman and JPMorgan played right along with many of the Wall Street practices that led to the crisis. They fought regulation — of derivatives, for instance — that might have prevented it. And their big profits can be traced not only to skill but also to the government’s decision last fall to bail out the financial sector just as the troubles that toppled Lehman Brothers and WaMu and forced Bear Stearns, Merrill Lynch and Wachovia into shotgun marriages began to endanger Goldman and (to a lesser extent) JPMorgan. “No one should be confused about the extent to which the public sector has provided a foundation for financial recovery,” White House economic czar Larry Summers said after Goldman and JPMorgan reported their stellar second-quarter earnings.

Now the question, as Fox notes, is whether Goldman and JPMorgan will repeat their past practices and put their highly compensated employees to work once again, fending off financial regulation from Washington.

Should that occur, it would provide the fuel for the return of pitchfork populism, even beyond huge profits and excessive compensation. The backlash won’t be subtle. And should bailed out banks leverage their taxpayer dollars to sway Washington in their favor, it won’t be the wrong approach, either.