The New York Times obtained a draft of a confidential memo to be distributed to all incoming House Republican lawmakers, in which Armey and FreedomWorks president Matt Kibbe tell lawmakers that working to repeal health care reform is “nonnegotiable,” and they’ll become the target of a major backlash if they don’t succeed in doing so.

“Politically speaking, your only choice is to get on offense and start moving boldly ahead to repeal, replace and defund Obamacare in 2011, or risk rejection by the voters in 2012,” Armey and Kibbe wrote.

Meanwhile, Erikson wrote yesterday, “We have a significant opportunity to improve the Senate GOP through some primaries [in 2012],” and he provided a list of all the Senate Republicans up for re-election in the next cycle:

John Barasso (WY)
Scott Brown (MA)
Bob Corker (TN)
John Ensign (NV)
Orrin Hatch (UT)
Kay Bailey Hutchison (TX)
Jon Kyl (AZ)
Richard Lugar (IN)
Olympia Snowe (ME)
Roger Wicker (MS)

Note that this is just the list of Senate Republicans running. Not all will be targets, but it will be from these men and women that the tea party movement starts looking for targets.

Now, before you all get giddy about Olympia Snowe, I would respectfully suggest that Corker, Hatch, Hutchison, Lugar, and Wicker make better targets as we have a much greater certainty of both beating them in primaries and also winning the general election.

Wicker and Corker in particular make exciting prospects for the tea party movement.

At this point, the aforementioned writings represent idle threats and not any sort of movement with real popular backing. But with the experiences of their successfully primaried colleagues like Sen. Bob Bennett (R-Utah), Rep. Mike Castle (R-Del.) and Sen. Lisa Murkowski (R-Alaska) fresh in the minds of most Republican congressmen, such threats might be enough to keep them marching in lockstep with the Tea Party’s demands throughout the next legislative session.

If written well and carefully considered, the Republican bill might have helped to define the parameters of reform, with the ultimate bill presumably falling between it and Sen. Chris Dodd’s (D-Conn.) bill. But the Republican alternative reform proposal just adopts the Dodd bill’s architecture. The two are so close, and with differences either so trivial or so glaring, as to give little insight into the concessions Democrats are in the final stages of making.

Overlooked, though, has been the fact that every panel Democrat voted for the bill. That might not sound unusual, but the Senate Banking Committee is home to Sen. Tim Johnson, the South Dakota Democrat with a long record of protecting the finance industry in the face of reforms. (South Dakota is a banking hub.) Indeed, last year Johnson opposed even the Democrats’ credit card reforms, a bill seen as the low-hanging fruit of finance reforms (if only because the banks were wildly unpopular at the time and so many voters have direct experience with the tricks used by credit card companies).

No matter. Johnson said at the time that the bill went “too far in prohibiting lenders from adjusting prices to account for increased risk.”

On the much more comprehensive bill passed by the Banking panel yesterday, though, Johnson indicated a change of tune, saying he was “pleased” Congress is moving to “modernize” the nation’s finance system. His vote in favor of the reforms, which are sponsored by Banking Chairman Chris Dodd (D-Conn.), provided the proof.

There’s still a long way to go. Indeed, more than 400 amendments have been filed against the bill, many of which would protect the banks at the expense of consumer protection. Still, some observers on Capitol Hill are saying today that Dodd’s ability to rally all the Democrats behind the bill is no small achievement — that Senate Democrats, for once, have shown some party discipline.

Johnson’s entire statement:

I am pleased that we are moving forward legislation that will create better regulation and protect consumers and Main Street small businesses. This has been a long process, and I commend the Chairman for working hard to find common ground to target the causes of the financial crisis, and reform and modernize our nation’s financial regulatory system.

The bill incorporates good ideas from both sides of the aisle.  It creates a systemic risk council to act as an early warning system, monitoring our economy and financial institutions for trouble.  It ends government bailouts by addressing the gaps that existed when large nonbank financial companies, like AIG and Lehman, failed and there were no tools to unwind them.  By ending “too big to fail,” the American taxpayer will never again be forced to shoulder the costs of risk taken on Wall Street.  It will also finally regulate exotic products like credit default swaps, and hold Wall Street companies accountable for the risks they take that put consumers at risk.

Our efforts at bipartisanship have led us to find good solutions to protect small community banks and credit unions. We have also found common ground to protect consumers, provide uniform rules regarding consumer protection, and level the playing field for banks and nonbanks.

This bill is not perfect, and there are certainly items each of us on this Committee would like to see improved as we go to the floor.  I am hopeful that bipartisan conversations will continue on these issues in coming weeks as the bill moves through the full Senate.

Okay, maybe it’s not so sweeping.

To entice the support of a few Republicans — notably Sen. Bob Corker (Tenn.), the lead negotiator for the GOP — the bill won’t include a separate consumer financial protection agency, which both the White House and countless consumer advocates say is the best strategy for reining in the most abusive practices of the banks and other financial institutions.

On top of that, Corker is reportedly insisting that any consumer protection unit included in the bill not have the power to regulate pawnbrokers, payday lenders and car dealers — among the most abusive branches of the finance industry, according to consumer advocates, who are already blasting the plan as insufficient.

“The point of the agency is to provide a cop on the beat that focuses where the problems are, not a cop that’s fenced off from some of the worst actors,” Elizabeth Warren, Harvard law professor and a longtime champion of a separate, robust consumer protection agency, told The Washington Post.

Still, Dodd says he’s pleased with the compromise on which he’s been focused for most of the year, even while he’s conceding that sticking points remain.

“Our talks will continue,” he said in a statement, “and it is still our hope to come to agreement on a strong bill all of the Senate can be proud to support very soon.”

Dodd said he hopes to hold a hearing to mark up the bill on March 22.

Senator Bob Corker (RINO-TN) has announced there is a compromise with Chris Dodd (read that as a total Republican surrender) that will allow financial regulation to go forward.

This will include:

• Making the major players in the financial sector “too big to fail”
• Authorizing the Federal Reserve to provide as much as $4 Trillion dollars the next time Wall Street crashes.
• Allows the government to back financial firms’ “debts”
• Creates a Board of Regulators to “spot” financial risks.  (Could this be made of the same group of geniuses who missed all of the signs that led to this financial crisis?)

These are just the details we know about.

There’s actually some discussion going on inside Tea Party groups as to whether it’s worth continuing to hammer on health care or whether its fate is sealed and it’s important to pre-define the financial reform and energy fights. Here’s an example of moving on — Tennessee, after all, is home to two retiring Democratic congressman who may switch their “no” votes to “yes” votes and save health care reform.

Bunning says that he wants the $10 billion cost to be paid for with cuts elsewhere, and, despite his past support for much larger unfunded bills, we’ll take him at his word. But there’s another good reason that Republicans want to prolong the debate over the unemployment benefits bill: Namely, it keeps all other Democratic priorities off the Senate floor.

If that sounds familiar it’s because GOP leaders used the same tactic in October, when they spent weeks delaying a UI extension that eventually passed 98 to 0. Now, like then, they know that the unemployment extension will pass. Now, like then, they know that most (if not all) of their caucus will vote for it. By why would they want the process to move quickly when it would simply allow Democrats to tackle more items on their legislative wish-list before the elections? The longer the Senate is forced to debate must-pass bills like unemployment benefits, the shorter a window Democrats will have to move things like health care reform, financial reform, climate legislation, etc. (The backlog is enormous: There are nearly 300 bills idling in the Senate that House Democrats have already passed this Congress. Few are supported by the Republicans.)

The reason Republicans have chosen this route is simple: It’s worked.

The delay on UI last year kept health care reform off the floor, ultimately forcing a Christmas Eve vote that pushed the House/Senate health reform negotiations into January. Then Scott Brown happened. Then health reform sputtered.

For the Republicans, there are perils here. More than 1 million unemployed workers stand to lose their benefits in March if Congress fails to extend the filing deadline. Republicans don’t want to be blamed when folks start exhausting those benefits, so who do they send to the floor (solo) to delay the process, but the least popular guy in the building — the tempestuous Jim Bunning, who’s retiring at the end of the year because Republican leadership, behind fellow Kentuckian Mitch McConnell, basically pushed him out.

Bunning is kind-of like the hockey thug who’s only role is to go out and punch the other team’s star player. It can’t hurt his reputation at all; even if it did, he’s not up for re-election; and he alone absorbs all the media attention and public scrutiny, while GOP leaders keep mostly silent. (McConnell, after all, has been distancing himself since Wednesday, when Bunning’s one-man filibuster began.)

So the players have changed, but the strategy’s the same: Just stall. Unfortunately for the unemployed, it seems to be working again.

President Obama’s economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency. In either case, they are insisting on a regulator with political autonomy and real teeth so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products.

Politically, this was probably inevitable. Republicans are unanimously opposed to a new stand-alone agency, arguing that it would represent just another lumbering bureaucracy incapable of tying its own shoes. They fear it would become the EPA of the finance world (i.e., that it would hinder companies’ ability to do exactly what they want). They aren’t going to vote for such a plan, particularly since Sen. Bob Corker (Tenn.) — the Republican leading the negotiations with Banking Committee Chairman Chris Dodd (D-Conn.) — is as adamantly opposed as the rest of his caucus.

Translation: The banks may be unpopular, and they may be the reason that the global economy collapsed, but their influence over lawmakers still ensures that they’ll get most of what they want on Capitol Hill.

Elizabeth Warren, chair of the Congressional Oversight Panel (EPA/ZUMAPRESS.com)

The White House wants it. Senate leaders support it. The House has already passed it. And, in the wake of the worst financial upheaval since the Great Depression, many consumer groups and state regulators say it’s vital if the country is to avoid another economic collapse. Yet the proposal to create a new consumer financial protection agency is, for all practical purposes, dead on arrival in the Senate.

Just call it the public option of the finance reform debate.

[Congress1]Indeed, Republicans are already treating the protection agency like poison. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) may have abandoned his finance-reform talks with Sen. Richard Shelby (R-Ala.), an outspoken foe of a separate agency to protect consumers. But Shelby’s replacement at the negotiating table is Sen. Bob Corker (R-Tenn.), who said recently that, just as Republicans were unanimous in opposing the public plan in the health care debate, so too are they united against an independent consumer financial protection agency, or CFPA — a proposal championed by Elizabeth Warren, head of the TARP oversight panel.

“For Republicans, including me, a free-standing agency is a nonstarter,” Corker told The Hill last week. Instead, Corker wants to carve out a consumer protection unit within a much larger bank regulator being proposed by Dodd.

Yet that idea worries many consumer advocates, who argue that the agency charged with ensuring the soundness of the nation’s financial institutions shouldn’t also be responsible for protecting consumers. It’s not difficult to imagine, for instance, situations in which firms profit from unfair or abusive practices. In those cases, the strategies that bolster the firms’ financial health might do so by taking advantage of the same confused consumers the agency is supposed to safeguard.

“These two missions can conflict,” Travis Plunkett, legislative director of the Consumer Federation of America, said Tuesday at a finance reform discussion hosted by the New America Foundation in Washington. “It would be like putting the Department of Commerce in charge of the EPA. … It would mean that we haven’t learned the lessons of the crisis.”

No matter. Despite the recent Wall Street collapse — a crash that required trillions of dollars in federal help and has left nearly a fifth of the country underemployed — the powerful financial services industry has retained remarkable sway on Capitol Hill. Not only have the nation’s largest firms rebounded to a point where seven- and eight-figure bonuses are again the norm, but they’ve also pumped tens of millions of dollars into K Street to lobby against the Democrats’ reform plans in general and the CFPA in particular.

The industry warns that too much government oversight would stifle innovation and ultimately limit access to the same credit that’s the lifeblood of the economy — not unlike the health insurance industry warning that the public option would ultimately harm the same consumers it’s designed to help. And lawmakers are listening. Not only are Republicans united against the CFPA, but a handful of Democrats — including Sens. Tim Johnson (S.D.), Ben Nelson (Neb.) and Mark Warner (Va.) — are wary as well. That opposition means that the Democrats would have had trouble creating the CFPA even before the surprise victory last month of Sen. Scott Brown (R-Mass.), which has forced the Democrats’ health care reforms to the back burner.

The saga highlights the dilemma facing Democrats in Congress and the White House in the run-up to November’s mid-term elections. On one hand, party leaders want to bolster their populist image; on the other, they’ll have to rally the support of at least a few business-friendly senators to get anything at all through the upper chamber, where 60 votes are required to pass everything. Meanwhile, Democrats also don’t want to alienate the same Wall Street firms that gave heavily to the party in 2008. If the enactment of strict new financial regulations was a foregone conclusion in February of 2009, a year later it’s looking like the Democrats will have to settle for weaker tea.

Another hurdle facing the CFPA, according to some observers, has been the failure of Democratic supporters to sell the importance of their proposal. Tim Fernholz?, writer at The American Prospect, pointed out that most voters have experience with mortgage loans, or car loans, or credit card rates or overdraft fees. The question is: why haven’t CFPA supporters been able to convince those same folks that a consumer protection agency would work to their benefit? “It really should be something that’s politically popular,” Fernholz said.

Jonathan Mintz, commissioner of New York City’s Department of Consumer Affairs, agreed that, despite all the evidence that the industry needs a shorter leash, the Democrats’ messaging has failed to resonate with the public at large. “You can be very specific about the harm that’s being done,” he said. “Suddenly what you’re talking about is a literal problem with a literal solution.”

Not that all Democrats are done fighting for the CFPA. “There needs to be a new agency with new powers for whom this will be a primary mission,” Lawrence Summers, White House National Economic Council director, said last month. More recently, White House Press Secretary Robert Gibbs echoed that sentiment, telling reporters Friday that an independent consumer protection authority remains “a great priority” of President Obama.

Congress is half way there. In December, House Democrats passed a financial reform package that included a stand-alone CFPA. Sponsored by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, the bill would prohibit certain complex financial products, require greater transparency surrounding terms and rein in misleading marketing campaigns. It received exactly zero Republican votes.

Some state financial regulators warned Tuesday that the industry has evolved quickly, with more and more companies dabbling in the complicated products that few seem to understand. “The fringe sector really isn’t so fringe anymore,” said Sarah Bloom Raskin?, Maryland’s commissioner of financial regulation.

Plunkett agreed, noting that the recent turmoil was caused by a series of regulatory failures that allowed the nation’s financial institutions to make a habit of abusive practices — a “parade of horribles,” Plunkett said, that extended well beyond sub-prime mortgage lending into the realm of credit cards, overdraft fees and payday loans. Because no one agency concentrates exclusively on protecting consumers, he said, they were able to focus elsewhere without much consequence — until it was too late.

“It’s a failure of will,” Plunkett said. “No one had consumer protection as a priority.”

And if Corker and the others have their way, that trend will continue.

“What you don’t want to have in my opinion is a consumer protection agency that’s free standing,” Corker said. “Nor do you want one that is inside another entity but acts as if it’s freestanding.”

What does that leave? Corker said he was looking at ways to carve out a consumer protection unit within the new bank regulator proposed by Dodd, Bloomberg reports.

Add the CFPA to the long list of “things Democrats want that they won’t get.”

The president still believes it is a great priority to have the independent authority to ensure that consumers in this reform are protected from the type of loans that we’ve seen happen that have led to massive foreclosure, the types of tricks with credit cards that we had seen in the past. …  So the president continues to be a very strong supporter of that function of the reform bill that we sent to Congress.

Pressed about whether it should be a standalone agency, Gibbs hedged a bit, saying it would have to have “independent authority.” The question remains: Will any Republicans — notably Sen. Bob Corker (R-Tenn.), who has taken the GOP lead on negotiations — get on board?