“Conservatives agree that as point person, you failed,” Rep. Kevin Brady (R-Texas) told the Treasury secretary yesterday during a hearing of the Joint Economic Committee. “Liberals are growing in that consensus as well. Poll after poll shows that the American public has lost confidence in this president’s ability to handle the economy. For the sake of our jobs, will you step down from your post?”

Geithner, of course, didn’t budge, arguing that it was Congress that left the new administration “an economy falling off the cliff.”

“Almost nothing of what you said represents a fair and accurate perception of where this economy is today,” Geithner told Brady.

And on some counts he’s right. Since Geithner’s swearing-in 10 months ago, the stock market has rebounded and the investment-banking industry has flourished. Yet little of that high-altitude recovery has trickled down to middle-class America, where homeowners continue to sink and unemployment is at a 26-year high.

That discrepancy has led some liberal Democrats to go after the White House recovery strategy as well. Earlier in the week, Rep. Peter DeFazio (D-Ore.) blasted Geithner and others on Obama’s economic team for hoarding unspent Wall Street bailout money instead of allowing Congress to tap some of it for infrastructure projects — a plan that would help shift the recovery to Main Street.

“Unfortunately, the president has an adviser from Wall Street, Larry Summers, and an adviser from Wall Street, Timmy Geithner, who don’t like that idea,” DeFazio told MSNBC’s Ed Schultz Wednesday. ”They want to keep the money [because] there may be more needs on Wall Street.”

None of this, of course, should come as any surprise. Geithner headed New York’s Federal Reserve Bank for the five years prior to his appointment atop Treasury, forming entrenched allegiances to Wall Street. So if there’s anything new in these latest episodes, it’s only that Congress is finally discovering where the loyalties of the Treasury secretary actually rest.

“The final overdraft rules represent an important step forward in consumer protection,” Fed Chairman Ben Bernanke said in a statement. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”

Threatened with congressional reform, some banks have already taken it upon themselves to operate more transparent overdraft protection programs. But the banking industry on the whole has opposed the idea, arguing that the overdraft protections benefit consumers by allowing them to make purchases even when accounts have run dry.

The industry has good reason to oppose the changes. Overdraft fees — which now top $30 apiece, on average — have evolved into a $38 billion-per-year money-making venture for the banks, according to Moebs Services, an Illinois-based financial research firm.

The Fed’s new rules take effect next summer.

Finance leaders in both chambers of Congress have introduced legislation to protect consumers from overdraft abuses. Aside from requiring customers to opt-in to the protection program, those bills also cap the number of overdraft fees allowed per year and prohibit banks from manipulating the chronology of purchases in order to maximize the number of overdraft fees — items the Fed’s new rules don’t address.

No word yet if the sponsors of those bills — Rep. Carolyn Maloney (D-N.Y.) and Sen. Chris Dodd (D-Conn.) — are satisfied with the Fed’s reforms or will keep pushing forward with their own, stronger consumer protections.

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.”

“These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy,” CRL senior researcher Leslie Parrish said in a statement.

Moebs Services, an Illinois-based financial research firm, estimates the 2009 overdraft revenue will top $38 billion.

The results shouldn’t come as much of a surprise, for several reasons. First, banks, recognizing the profit-churning potential of overdraft fees in recent years, have grown more sophisticated in their methods of triggering them. Some, for example, will reorder debit purchases by amount, rather than chronology, in order to maximize the number of overdraft fees slapped on consumers.  Also, the increase in joblessness that’s accompanied the recession means that more bank accounts are hovering near empty. (Of course, it was the banks that were primarily responsible for the economic collapse that caused the recession, so for them now to be hitting affected consumers with additional fees to pad their profit margins only adds insult to injury.)

The trend has caught the eye of some powerful lawmakers, who are hoping this year to pass legislation to protect consumers from runaway overdraft fees. A House bill, sponsored by Rep. Carolyn Maloney (D-N.Y.), would prohibit banks from charging the fees unless consumers sign up for the overdraft protection service. It would also prevent banks from reordering purchases in order to maximize the number of overdraft fees.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) says he plans to introduce a similar bill shortly.

By the end of October, Angelides said at this morning’s first FCIC meeting, the panel will “be sending letters to companies referenced in the statute to make sure records are preserved.”

The FCIC was given a $5 million budget as well as 22 separate financial issues and products to investigate as possible causes of the economic meltdown. (A list of all 22 is available after the jump.) Angelides said the panel soon would “boil those [22] down” and give the public a sense of in what order they would tackle.

As it moves forward — potentially striking fear in the hearts of any bank executive who’s considered turning on the shredder — the FCIC plans to open a full-time Washington office and hire more staff members. The panel’s senior aide has already started work: Thomas Greene, a 25-year veteran of the California attorney general’s office and leader of the civil prosecution team that took on Enron.

The FCIC’s 22 areas of focus cover the horizon of financial practices that have come under fire for helping to encourage unsustainable risk, subprime mortgage lending, and the securitization of just about everything under the sun. Indeed, its biggest obstacle in leaving no stone unturned may not be the political ties of its members or Congress’ uncertain regulatory reform effort, but rather the rules for issuing subpoenas.

The law that created the FCIC, which is split 6 to 4 in favor of Democratic-named members, specifies that subpoenas must be approved by at least one GOP-appointed member in order to be valid. Thus, Republicans could theoretically stave off a summons to a former Bush administration official by withholding their votes and pressing for private discussions rather than public testimony.

The bipartisan 9/11 Commission, which was evenly matched between Democrats and Republicans, accepted private, time-constrained interviews with former President George W. Bush and Vice President Dick Cheney, while former President Clinton and Vice President Al Gore agreed to take questions in public without a time limit.

The FCIC’s mission, according to the statute that created it, is “to examine the causes of the current financial and economic crisis in the United States, specifically the role of”:

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
(D) monetary policy and the availability and terms of credit;
(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
(F) tax treatment of financial products and investments;
(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
(K) the concept that certain institutions are `too-big-to-fail’ and its impact on market expectations;
(L) corporate governance, including the impact of company conversions from partnerships to corporations;
(M) compensation structures;
(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
(O) the legal and regulatory structure of the United States housing market;
(P) derivatives and unregulated financial products and practices, including credit default swaps;
(Q) short-selling;
(R) financial institution reliance on numerical models, including risk models and credit ratings;
(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
(T) the legal and regulatory structure governing investor and mortgagor protection;
(U) financial institutions and government-sponsored enterprises; and
(V) the quality of due diligence undertaken by financial institutions

“You don’t have to wait to use plain language in your dealings with consumers,” Obama said. “You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote. You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.”

Felix Salmon at Reuters particularly liked this explanation of the need for a Consumer Financial Protection Agency:

Consumers shouldn’t have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card – that appear without warning on their statements. And responsible lenders, including community banks, doing the right thing shouldn’t have to worry about ruinous competition from unregulated competitors.

Opponents of such an agency argue that it will limit consumer choice and financial innovation, but Salmon says Obama countered that argument well in his speech, by arguing that in the past a lack of rules has meant “innovation of the wrong kind,” like the firm that could make its products look best by “doing the best job of hiding the real costs.”

For example, we had “teaser” rates on credit cards and mortgages that lured people in and then surprised them with big rate increases. By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s most complex or confusing.

Derek Thompson at The Atlantic, however, has a different take. Obama, he said, channelled his inner Jennifer Aniston in the speech.

I have an running observation about Obama, inspired by this article in The New Republic, that the president likes to remind audiences that he would prefer to tweak their incentives than have the government mandate reform. He and Treasury, you remember, wanted private investors to choose to buy the toxic assets. He continues to ask private insurers to choose preventative care, end underwriting and cut it out with rescission.

This instinct reminded me of a famous scene from Aniston’s movie The Break-Up, where her character famously tells her live-in boyfriend (Vince Vaughn), not that she wants to do the dishes for him; nor that she wants to force him to do the dishes: She wants him to want to do the dishes.

Reading Obama’s speech with my Rom-Com glasses on, the message is strikingly familiar. Obama doesn’t want to run Wall St. He wants Wall St. to re-learn how to run itself.

In the movie, Aniston’s wish for her boyfriend to want to do the dishes doesn’t exactly come true. Thompson isn’t sure Obama will fare any better.

I swear, it’s not just me watching too much TBS. Tim Fernholz remarks that “his call for financial sector players to act voluntarily in the public interest immediately rather than waiting for reform to pass” sounds like “health care tactics all over again.” It’s true! This is a very standard rhetorical tactic for Obama. Whether it works for him better than the threat worked for Aniston’s character, however, remains an open question.

And that’s the question that remains, as the Lehman anniversary passes, Obama heads back to Washington, and the fate of financial regulatory reform remains up in the air.

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.”

The financial markets are too important to the economy to be left to the markets alone. You need a strong framework of regulations, a much stronger framework than we had.

In Congress, Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, and Rep. Barney Frank (D-Mass.), who heads the House Financial Services panel, are pushing for sweeping reforms of the finance industry this year, including the creation of a new agency designed to protect consumers from some of the more dubious practices of the banks.

With Congress already facing hugely contentious health reform and climate change bills this fall, however, the Democrats might not want to hold their breath for action this year.