The Fed, Treasury and the Senate Budget Committee appear to have a favorite private sector economist, one who has managed to become a favorite even though he works for a unit of the same rating agency whose analysis is intrinsically tied to both the market, banking and housing crisis.

Mark Zandi of Moody’s Economy.com is routinely trotted out as an independent expert. He was the sole economist at the August 17 Treasury Conference on the Future of Housing Finance, the Fed’s REO and Vacant Properties conference and has now testified at the September 22^nd Senate Budget Committee hearing on “Assessing the Federal Policy Response to the Economic Crisis.”

Never mind that, based on Zandi’s record, either his analysis is just wrong or his independence is compromised. Everyone seems to like to hear the guy who is saying what people want to hear, even the press appears to prefer “feel good” analysis to considering the accuracy of his record.

I like Mark Zandi quite a bit. He is collegial, considerate, considered and smart. But his optimism is helping Washington avoid addressing the reality of our economic problems and the structural issues that must be addressed before our economy can sustain renewed growth.

So why is Zandi the Beltway’s Mr. Congeniality? That question is easy to answer, I think.

Zandi advised Sen. John McCain (R-Ariz.) in his presidential run and is widely respected in the business community. He isn’t seen as a liberal, or a partisan. But, for months now, he has argued for more stimulus, hailed TARP and generally sided with Democrats on major economic questions. Ergo, Democrats get to cite a Republican when arguing for their policies, knowing said Republican adviser will publicly back them up. If Doug Holtz-Eakin did, Democrats would happily cite him too.

None of this is to question Zandi’s work or to say anything about his politics, of course. It is just to note he is so frequently cited because it is so uniquely expedient for Democrats to cite him.

Don’t hold your breath. Proving that their calls for bipartisanship are bunk, GOP leaders are already lashing out at the possibility that the commission would recommend that someone, somewhere pay higher taxes. “Americans know our problem is not that we tax too little, but that Washington spends too much,” Senate Minority Leader Mitch McConnell (R-Ky.) said yesterday in a statement. (That’s the same Mitch McConnell who once called a deficit commission “the best way to address the [budget] crisis,” then voted against the proposal anyway.)

That’s also the message coming from the headliners at CPAC this week. Florida GOP Senate candidate Marco Rubio yesterday told the conservative faithful assembled in Washington that his plan for balancing the budget features an across-the-board tax cut, including an abolition of taxes on capital gains, dividends and interest.

“While we’re at it, let’s eliminate the one on death, too,” he said.

The implication from McConnell, Rubio and a host of others is that they can slash federal revenues and balance the budget by simply taking a hatchet to government programs. They must have forgotten what happened when the White House recently proposed to cut some spending in GOP Sen. Richard Shelby’s Alabama. Or the Republican outcry that accompanied the Democrats’ proposal to cut some payments to the private insurance plans operating under Medicare. Or the inconvenient fact that conservative states have historically received a good deal more federal funding than their residents have paid in federal taxes.

Into this picture, enter Alan Simpson, former GOP senator from Wyoming. Simpson — who, along with University of North Carolina President Erskine Bowles, will head Obama’s deficit commission — told PBS NewsHour’s Judy Woodruff yesterday that those who think deficits can be controlled solely with spending cuts are, well, dazed and confused. From the transcript:

Woodruff: Some people, mainly Republicans right now, are arguing, what’s really needed are tax cuts, that, even if it raises the deficit in the short term, that this would get government out of the way of business, business could grow, and the deficit will take care of itself.

Simpson:  Well, I’m not smoking that same pipe. …

Everything is on the table.  But, if we’re just going to use flash words like cutting children’s benefits or cutting veterans or raising taxes, it will be a tougher struggle.

Everything is out there.  We [know] how people use emotion, fear, guilt, and racism.  I have been through that old stuff with immigration. … I don’t use those.  I use facts.  And we’re going to do a lot of facts.

Whether facts mean anything in an election year is another question altogether.

That little inconvenience hasn’t dissuaded the Obama administration from proposing a $30 billion small-business loan program using repaid TARP cash. But it does set the White House up for a good deal of criticism from budget hawks. On cue, Sen. Judd Gregg (N.H.), senior Republican on the Budget Committee, issued a statement today reminding Democrats that “TARP is not a piggybank.”

Under the TARP law, repaid TARP funds must be used to reduce the debt — and given that we will have a $1.6 trillion deficit this year and the Senate just voted to increase the debt limit to more than $14 trillion, the requirements of the TARP law should not be changed…

TARP dollars should not be used as a slush fund for the President’s other priorities. The TARP program should end immediately, and, as the TARP law requires, all repaid funds should be used to reduce our staggering debt burden, not used in a way that will add to it.

Gregg would know. He authored the TARP provision requiring any returned funds to go toward debt reduction.

Though Gregg was a supporter of the Wall Street bailout, his statement this afternoon indicates that he’s poised to push back against the Democrats’ plans for sweeping new banking reforms.

We have stepped back from the ledge of economic collapse, but it is critical that we do not over-correct the problems that contributed to the breakdown so that we lose the entrepreneurial spirit of innovation that has helped build our country and kept the U.S. competitive.

Gregg is also the senior Republican on the Budget Committee, a spot he’ll retain.

Asked by a House Oversight investigator if Conrad, the North Dakota senator, “was aware that he was getting preferential treatment?” Feinberg answered: “Yes, he was aware.”

Referring to Dodd, the investigator asked:

“And do you know if during the course of your communications” with the senator or his wife “that you ever had an opportunity to share with them if they were getting special VIP treatment?”

“Yes, yes,” Feinberg replied.

Both Dodd’s and Conrad’s offices refute Feinberg’s statements, The AP reports, meaning that, at least for now, this remains a he-said-she-said story. Still, the accusations don’t look good on the resumes of guys who are in the business of being popular — particularly for Dodd, who’s got a tough reelection contest less than 16 months away.

That’s because of damning testimony given yesterday by Douglas Elmendorf, director of the Congressional Budget Office, which is charged with estimating the costs associated with legislative proposals. Regarding the Democrats’ health reform plans, Elmendorf told the Senate Budget Committee Thursday that their strategy would increase, rather than control, the long-term trajectory of health care costs that threatens to swallow the country’s economy.

“The curve is being raised,” he testified.

Republicans, already harshly critical of the Democrats’ proposals, pounced on the news.

Not that it’s slowed the process just yet. Indeed, the House Ways & Means Committee passed its portion of the House bill early this morning. Still, it’ll be interesting to see how Democrats will defend their proposal’s capacity to rein in health care spending in the wake of Elmendorf’s testimony.

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Breaking from previous administrations, Obama’s budget acknowledged that fighting the wars in Iraq and Afghanistan will actually cost money; it conceded that big pay cuts for doctors treating Medicare patients would never be realized; it admitted that tens-of-billions of dollars in revenues generated by the alternative minimum tax would never be collected because Congress steps in each year to prevent millions of middle class families from paying the tax. (This year, the AMT patch arrived in the stimulus bill — at a cost of $70 billion. All of it borrowed.) And, rather than projecting the figures out for only five years (like President George W. Bush made a habit of doing), Obama’s budget looked 10 years ahead, to lend a better picture of the fiscal imbalances that loom further down the road.

Leave it to Congress to bring some of those gimmicks back.

Both Senate Budget Committee Chairman Kent Conrad (D-N.D.) and House Budget Committee Chairman John Spratt (D-S.C.) this week are considering spending proposals of their own, rife with some of the very tallying dishonesties that have plagued the past. An editorial in The Washington Post today has a concise rundown.

The congressional budgets, The Post points out, look ahead only five years. They eliminate $250 billion included in Obama’s budget for more Wall Street bailouts, though the lawmakers “have no reason to believe it won’t be needed.” And Spratt acknowledges only one year of funding for the AMT patch — not the required five — while Conrad includes only three years of AMT money.  The Post offers an explanation:

There’s no mystery as to the motivation for this dishonesty. Like Mr. Obama, the Democrats in Congress want to spend more on education, energy and other popular programs. Like Mr. Obama, they don’t want to level with voters about the need to pay for such programs through increased taxes. According to the CBO, Mr. Obama’s budget plan would have the government spending more than 23 percent of gross domestic product throughout the second half of this decade while collecting less than 19 percent in revenue. Rather than fix this problem, Mr. Conrad in his budget proposal closes his eyes and wishes it away.

Last month, Conrad said Obama’s plan “is a more accurate reflection” of federal spending than past budgets, and he went after GOP critics for “things that the other side is not counting at all,” pointing specifically to the AMT patch.

Conrad also gave a curious answer when asked specifically if the AMT fix should be offset:

I believe extending the alternative minimum tax past the next couple of years should be offset. And I have taken that position consistently.  I don’t think it should be offset at this time of severe economic weakness.  I think that would be counterproductive. But beyond the next couple of years, when we are now seeing forecasts from CBO and OMB of economic recovery, at that point, I think it should be offset.

Instead he did just the opposite, funding the AMT for three years before abandoning it later.

Both the House and Senate budget panels have plans to pass their proposals out of committee today, with the full chambers expected to consider them next week.

Experts have pointed out that real change in Washington comes only in times of severe crisis. At least as it pertains to budgets, it seems that the current crisis isn’t severe enough yet.

In an interview with MSNBC today, the senior Republican on the Senate Budget Committee was asked to react to last night’s National Republican Congressional Committee speech from Louisiana Gov. Bobby Jindal (R), who said it’s OK for Republicans to want Obama to fail — in certain endeavors. Gregg’s response:

It’s an issue-oriented event. And clearly, this budget needs to be rewritten and it needs to be re- done, and we’re willing to do it in a bipartisan way. We’re willing to sit down on issues like entitlement reform and get something done that’s going to be constructive.

I really don’t want the president to fail. If the president fails, the country fails.

Now someone make this story go away.

Gregg, of course, withdrew his nomination for commerce secretary in a storm of media attention last month. The senator, the ranking Republican on the Senate Budget Committee, cited concerns that his spending philosophy was too far adrift from that of the White House.

He wasn’t kidding.

In today’s Washington Times, Gregg minces no words in going after Obama’s $3.6 trillion budget wish-list for 2010:

The president’s budget also proposes to set us on a path to nationalize the health-care system at a huge cost, and, for good measure, it throws in nationalizing the ability of people to borrow to send their kids to college. It suggests that the best way to address climate change is to create a new national sales tax on everyone’s electric bills. And, at a time when millions of Americans are struggling to find jobs, it proposes taxing small businesses, our nation’s engine of job growth, at rate that could be seen as confiscatory.

In other words, the president’s proposal is a massive and breathtaking document, and it should not be called a budget. Rather, it should be called a blueprint for the France-ification of America, a notebook for nationalization, or a memo for massive debt creation. But a budget, by any sense of the word, it is not.

The rant might be easily dismissed if Gregg’s Democratic counterpart on the Budget Committee, Chairman Kent Conrad of North Dakota, didn’t harbor a similar distaste for parts of the president’s budget. Notably, Conrad has criticized the administration’s cap-and-trade proposal, arguing that it would increase fuel costs at a time when Americans can least afford it. Earlier this week, he told The Hill that anyone who thought the White House budget would pass the Senate “is smoking something.”

At least we know where they stand.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke said. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke went on to say that AIG “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” according to Bloomberg. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm, Bernanke said.

AIG lost nearly $62 billion in the fourth quarter of last year, the biggest corporate loss in U.S. history.

Nice to know that AIG’s behavior, which has become a symbol of corporate incompetence, even gets under Bernanke’s skin.