Observers had expected a drawn-out battle over Senate Democrats’ plans to overhaul the nations financial regulations in favor of more oversight and consumer protection. The Senate bill is being marked up in the Banking Committee beginning at 5 p.m. today.

But sources on and off Capitol Hill are now indicating that, in a surprise move, the Republicans — who’ve introduced hundreds of amendments designed to dilute the bill — will pick their fight on the Senate floor in lieu of the committee room. CNBC has the money quote (via NYT) from Sen. Bob Corker (R-Tenn), a member of the Banking panel who had been in negotiations with Chairman Chris Dodd (D-Conn.) over the reform package.

“What will happen tonight is probably — there will be no markup,” Corker told CNBC. “There will be some opening statements and the bill will pass out. So here you have a 1,300-page bill that is chalk [sic] full of substance that actually matters that really won’t be vetted.”

First, the banks the president would tax are repaying their TARP money with interest to the Treasury. Though not all of the TARP money given to the banks has yet to come back, the government will get it all back with a significant profit because the government was paid such generous interest under the terms of the TARP.

Second, the president misused the TARP money by investing in GM and Chrysler, and GMAC, and that is where the government will lose money.

If anything should be taxed, Morici continues, “it should be cars” — a proposal that would surely inspire screams of protest from a key Democratic constituency: the autoworkers union. So in the name of taking on industry, Morici argues, the White House is really just coddling it.

The proposed bank tax is meaninglessly small, serves no purpose toward reforming the banks, and is merely an attempt by the president to appear on the side of the auto industry and against the banks, when he is really on the side of union organizers and the bankers.

Morici may not have reason to worry. In this political environment, in which even the seat of the late Sen. Edward Kennedy (D-Mass.) is up for grabs, the Democrats might just lose their appetite for taking on the finance industry before the mid-terms. Indeed, there are already signs that that’s the case.

We speculated this morning that Geithner’s close ties to Wall Street might have been behind the decision to shield those firms from the scrutiny that would have surely followed had those payments been made public. And some Republicans are already calling on Geithner to testify about the episode. But the more influential figure might have been Marshall Huebner. Who’s Marshall Huebner? Good question. He’s the high-powered Wall Street lawyer who went, literally, from representing JPMorgan Chase one minute to leading the AIG bailout the next.

Last April, American Lawyer explained the switch like this:

Of course, Huebner had JPMorgan’s blessing. Indeed, he was in the New York Federal Reserve building, representing JPMorgan Chase, when the request came. “It was pretty wild,” says Huebner. “JPMorgan released us as counsel in about one hour, [and minutes later] “I literally went upstairs with our new clients” — the Federal Reserve Bank of New York and the U.S. Department of the Treasury. The government had turned to Huebner to lead the $152.5 billion rescue of insurance giant American International Group, Inc.

Before morphing into a G-lawyer, Huebner had represented JPMorgan Chase in its attempt to complete a private rescue of AIG in September. But soon after taking on that assignment, it became apparent that AIG needed more cash than the private markets could muster. That’s when the big guns, including then-Treasury secretary Henry Paulson, Jr., and then-New York Federal Reserve president Timothy Geithner, turned to Huebner.

And wouldn’t you know that Huebner’s former client, JPMorgan Chase, was one of the firms doing business with AIG. Here’s, former New York Gov. Eliot Spitzer warning the world about AIG’s backdoor payments 10 months ago.

And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

No matter. The country at the time was preoccupied with $165 million in bonuses AIG was paying its executives. Who had time to worry about the bank-door transfer of more than $60 billion from the taxpayers to Goldman Sachs and JPMorgan?

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.”

A Wells Fargo executive who oversees foreclosed properties hosted parties and spent long summer weekends in a $12 million Malibu beach house, moving into the home just after it had been surrendered to Wells Fargo to satisfy debts, neighbors told The Associated Press.

It seems that Cheronda Guyton, a senior vice president responsible for foreclosed commercial properties at Wells Fargo, moved into the home in May after the previous owners lost their shirts in the Bernie Madoff scheme.

On Wednesday, another Wells executive, Mary Coffin, told House lawmakers that the banking giant, though a big corporation, “operate[s] with the conscience of a company determined to do what is right for our customers, our investors, and for all American taxpayers.”

Guyton’s actions suggest a different reality. And though it might be an isolated case, Mary this week pointed to a more systemic (and egregious) practice allegedly adopted by a Wells office in California: an alleged policy of lending discrimination in minority neighborhoods.

Wells stock might be on the rise, but its public image is quickly sinking.

Update: Thanks to reader M.A.M. for sending on a link to amazing photos of the actual house.

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Waters: When you bought the loan from this mortgage company, you had to look at it to see what you were buying, right?

Coffin: Not loan by loan.

Waters: Not loan by loan. You got packages?

Coffin: [Nods in agreement.]

It’s a curious response. You wouldn’t buy a car without taking a test drive, wouldn’t buy a house without a walk-through. Yet here were servicers snatching up mortgages with such urgency and nonchalance that they didn’t even care to investigate their soundness.

Waters says she has constituents who have been victims of mortgage fraud, their incomes falsified by mortgage originators to justify the terms and to make the loans look less risky than they were to entice the servicers vying to buy them up — situations that proved disastrous to all parties when the housing market tanked and home prices went underwater.

Complicating the issue, Coffin said, “many of the companies who originated those loans are out of business.”

Try squeezing the accountable party out of that mess.

And the trouble is expected only to get worse.

Jay Brinkmann, MBA’s chief economist, predicts that, based on rising unemployment projections, the number of foreclosures likely won’t peak until the end of 2010.

“Our forecast is that jobless rates will peak in the middle of next year, and we’ll expect delinquencies to peak then and foreclosures to peak after,” Brinkmann said, according to The Hill.

Not that Washington policymakers haven’t taken steps to help struggling homeowners. But the Obama administration’s plan, which relies primarily on banks to modify mortgages voluntarily, hasn’t kept pace with the rising number of foreclosures.

As a result, some congressional Democrats would like to return to bankruptcy reform legislation, which failed in the Senate earlier this year. Indeed, a subpanel of the Senate Judiciary Committee held a hearing on “cramdown” this morning in Rhode Island.

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.”

In a letter today to Federal Reserve Chairman Ben Bernanke, 10 House lawmakers are asking why Goldman — which last year converted to a bank holding company in order to tap bailout funds — is still allowed to behave largely unregulated, like the investment bank it previously was. The resulting dynamic, the lawmakers conclude, is that Goldman has been granted the best of all worlds: It’s bank status made it eligible for taxpayer-funded gifts — which it’s repaid — while a February exemption from bank regulations allowed it to invest those funds without the risk-limiting oversight of the government.

Despite its exemption from bank holding company regulations, Goldman Sachs has access to taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market.  The only difference between Goldman Sachs today and Goldman Sachs last year is that today, the company is officially gambling with government money.  This is the very definition of “heads we win, tails the taxpayers lose.”

To its credit, Goldman at least is being honest about its unique position. The company’s Chief Financial Officer David Viniar told Bloomberg earlier this month that, “Our model really never changed.”

“We’ve said very consistently that our business model remained the same.”

Signing the letter were Reps. Alan Grayson (D-Fla.), Ron Paul (R-Texas), Walter Jones (R-N.C.), Brad Miller (D-N.C.), Dan Lipinski (D-Ill.), Elijah Cummings (D-Md.), Tom Perriello (D-Va.), Maxine Waters (D-Calif.), Jackie Speier (D-Cal.) and Maurice Hinchey (D-N.Y.).

The six questions from the lawmakers to Bernanke follow:

1) In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company.  Please justify this statement.

2) If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?

3) What is the difference in exposure to the taxpayer between these two regulatory regimes?

4) What is the difference in total risk to the portfolio between these two regulatory regimes?

5) Goldman Sachs stated that “As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders’ equity (common shareholders’ equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings.”  As a percentage of capital, that’s a lot of long-term unsecured debt.  Is any of this coming from the Government?  In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly?

6) Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk.  What is your overall view of Taleb’s argument, and of the utility of Value-at-Risk models as regulatory tools?

Leaders of the Senate Judiciary Committee, not satisfied that mortgage lenders and servicers have done enough to prevent foreclosure voluntarily, have scheduled a cramdown hearing for Thursday. They have good reason. Even as the nation’s largest banks are posting record second-quarter profits, the number of foreclosures continues to rise, topping 1.5 million for the year, according to RealtyTrac, including 336,000 in the month of June alone.

The Obama administration, which once supported cramdown — a proposal to allow bankruptcy judges to modify the terms of mortgages — says it doesn’t need the additional leverage to tackle the housing crisis. But if the numbers continue to rise through the year — which they could very well do as unemployment figures go up — then the pressure on Congress to take additional steps will also increase.

Sen. Richard Durbin (D-Ill.), sponsor of the Senate cramdown bill, has vowed to bring it back up at the first ready opportunity. There won’t be many of those in a year when the legislative calendar is already squeezed with big-ticket items like health care reform and climate change legislation. Then again, the housing crisis was at the root of this downturn. If there’s a bigger-ticket item than stabilizing this economy, we don’t know what it is.