Obama To Veto Any Wall Street Reform Bill Minus Derivatives Control

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Obama Threatens Regulatory Reform Veto


President Barack Obama on Friday threatened to Veto a Wall Street reform bill that fails to place tight controls on derivatives, the complex financial instruments that played a key role in the 2008 global meltdown.

But, setting up a showdown on the legislation, Senate Republicans lined up Friday in opposition to the Democratic financial overhaul plan — even as Senate Democratic leaders want to bring the bill to the floor next week.

Obama’s veto threat — a rare move from the president — came as Senate Agriculture Chairwoman Blanche Lincoln (D-Ark.) released a bill Friday that would force derivatives to be traded on exchanges and block major banks from trading directly in derivatives, stripping them of a key source of billions in income.

"I want to see what emerges, but I will veto legislation that does not bring the derivatives market under control," Obama told reporters before beginning a meeting with his Economic Recovery Advisory Board. He added that the legislation should ensure "that we don’t have the same sort of crisis.”

The Senate is preparing to open debate on a financial regulatory reform bill as early as next week, but one of the major outstanding issues is how to regulate the $450 trillion derivatives market. Lincoln would go further than the House and Senate Banking Committee approaches.

At the same time, Senate Minority Leader Mitch McConnell (R-Ky.) released a letter signed by all 41 members of his conference saying they are “united in our opposition to the partisan legislation reported by the Senate Banking Committee.”

“We encourage you to take a bipartisan and inclusive approach, rather than the partisan path you chose on health care,” the letter stated. “We urge you to support the bipartisan negotiations by the Banking and Agriculture Committees. We are confident that the Senate can overcome political tensions and provide a bipartisan path to financial reform this year.”

The letter, which lacked unanimous support until Friday while Sen. Susan Collins (R-Maine) hesitated in signing it, signals that Senate Majority Leader Harry Reid (D-Nev.) may lack the crucial 60th vote needed to bring the bill to the floor. It's not clear from the letter that all 41 Republicans would decide to filibuster the measure.

When asked if Collins would oppose the first crucial test vote called a motion to proceed, her spokesman said: "The letter reflects her opposition to the Banking Committee bill. Sen. Collins is hopeful that the Senate Majority Leader will decide not to bring a partisan bill to the Senate floor."

Obama would not specify which package of derivative reforms he favored but added that more "transparency and oversight" need to be brought to the market so that "everyone knows exactly what's going on."

Lincoln’s 336-page bill, which could be folded into the broader regulatory reform legislation, would increase transparency in the market, prohibit swaps dealers from receiving any federal assistance, and require derivatives trades to go through clearinghouses. Lincoln’s approach has been hailed by Wall Street critics who want to see tight controls, but it’s unclear how much support it will receive among her Senate colleagues.

White House economic adviser Larry Summers suggested Lincoln's approach was in line with what the White House wanted to see.

“We haven’t seen the language yet,” Summers said Friday on Bloomberg Television's "Political Capital With Al Hunt." “What we do support is the principles that derivatives need to be traded in the sunshine, that there needs to be centralized clearing, and Sen. Lincoln appears to be moving very much in those directions.”

Obama also renewed his call on Congress to deliver an overall bill that would prevent another economic crisis.

"We can't allow history to repeat itself," he said, adding that taxpayers should not have to step in to prop up financial institutions again. "We can't leave in place a tattered set of rules that will allow another crisis to develop without the rules to deal with it."

The bill, Obama said, would force banks to "pay for bad decisions" they make. "That means no more bailouts," he said.

Focusing on derivatives, Obama said more "transparency and oversight" need to be brought to the market so that "everyone knows exactly what's going on."

Charging that "some in the industry are not happy with the prospect of these reforms," Obama said lobbyists have "found some willing allies on the other side of the aisle in Congress." Still, the president voiced his hopes for a "bipartisan bill" that stops firms from taking reckless risks.

"Every member of Congress is going to have make a decision," he said. "Are they going to side with the special interests and the status quo, or are they going to side with the American people?"

"It’s time that we demanded accountability on Wall Street," he said.


Sources: CNBC, MSNBC, Politico, Whitehouse.gov, Youtube

Dodd: Obama W.H. Playing Politics With Bank Reform

Chris Dodd: White House Missteps On Regulatory Reform


Senate Banking Chairman Chris Dodd may like the Obama’s administration’s new bank proposals, but he’s not happy about the roll-out.

Dodd chastised the White House for announcing its latest salvo against the Wall Street mere days after Democrats lost the Massachusetts Senate special election, saying the perceived politics of the move has made it difficult to sell the measures to his colleagues.

“The idea that the administration made such a major point a week or so ago seemed to many to be transparently political and not substantive. And it’s adding to the problems of trying to get a bill done,” Dodd lectured Deputy Treasury Secretary Neal Wolin and, to a lesser extent, former Federal Reserve Chairman Paul Volcker, who appeared before Dodd’s committee Tuesday.

Dodd’s candid remarks came at the end of a lengthy hearing in which Dodd and other Democrats endorsed the bank proposals. But his lecture warned the White House that there’s no guarantee he can get the new measures into the Senate bill – and if they don’t, it’s at least partly the administration’s own fault.

Dodd said he knew that President Barack Obama had settled on the proposals weeks before the Massachussetts election. "[But] the way sometimes these things are announced doesn’t help. And I make recommendations and so forth as to how to do this stuff and then it falls on deaf ears,” Dodd said, suggesting he warned the White House not to announce the proposals when it did. “So we end up in the situation where I'm grappling around here trying to convince people there's a substantive idea here.”

Dodd declined to elaborate further on what advice the White House had ignored, when asked by POLITICO after the hearing.

The failure of the Senate to include the new bank proposals would be a major blow to Obama’s effort to harness voters’ populist anger to Democrats’ advantage.

The measures in question certainly sound like winning political issues: One would ban commercial banks from engaging in high-risk investment activities – the so-called “Volcker rule” since the former Fed Chairman is its architect; the other seeks to curb the size of the nation’s biggest financial institutions.

And at least initially they appear to appeal to a bipartisan desire to reign in the size of the financial behemoths whose risky behaviors triggered the financial crisis.

Sen. John McCain (R-Ariz.), for instance, has introduced legislation with Democrat Maria Cantwell that is similar to the Volcker rule, seeking to restore the Depression era wall between commercial and investment banking. McCain said he hasn’t looked at the details of the White House proposals, “but I’m in agreement … we ought to take measures to prevent institutions from being too big to fail. That’s certainly the opinion of my constituents in Arizona.”

But, as Dodd scolded the White House Tuesday, the new proposals come late in the game and in a way that makes Republicans immediately suspect the motives behind them.

The House passed a financial reform bill in December. Dodd introduced a discussion draft in November. The round of bipartisan talks that started after Dodd’s draft have been going on for months, too, and Dodd wants to wrap things up in time for an early March markup. To that end, he has asked the bipartisan working groups that are negotiating key portions of the bill to submit to him their language by mid-February.

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“I don't want to be in a position where we end up doing nothing because we tried to do too much at a critical moment,” Dodd said.

And Dodd sent his strongest signal yet that he’s committed to making tough compromises in order to get a bipartisan bill – a stance that means key White House priorities – including the Volcker rule – could get cut in order to get that deal. Also at risk is the adminstration’s proposal to create a stand-alone Consumer Financial Protection Agency.

“I don't want to go to the floor of the United States Senate begging for a 60th vote. I'm not going to do that,” Dodd said at the end of the hearing. He reiterated the point to reporters afterward, saying he doesn’t think the Senate could withstand another knock-down, drag-out fight.

It’s also clear that the lack of detail hasn’t helped the administration’s case on Capitol Hill. Industry lobbyists and lawmakers alike complain that they can’t judge the new proposals without detailed language from Treasury – language that Treasury officials still can’t say when they’ll be able to provide.

“When we call down and say, ‘How does it work?’ and specifically what you had in mind, I expect answers to the questions,” Dodd told Wolin. “We've made the calls and we're not getting good answers.”

Nonetheless, none of the committee’s Republicans outright rejected the proposals Tuesday. Sen. Richard Shelby of Alabama, who has the most influence among Republicans over the final shape of the bill, he is “willing to consider any proposal that will strengthen our regulatory framework and help our economy — including the president’s latest recommendations.”

But he, too, tweaked the timing of the measures’ release. “I hope … that this is not an indication that the administration intends to substitute thoughtful analysis with whatever polls well on a given day,” said Shelby, the top Republican on the committee.

Other Republicans expressed more resistance.

Sens. Bob Corker (R-Tenn.) and Mike Johanns (R-Neb.) both took great pains to argue that the new proposals, had they been in place before the crisis would not have prevented any of the calamities that occurred, an argument being made by financial industry lobbyists opposed to the new measures.

Volcker urged the senators to look forward and also to see it as part of the broader reform package, not a cure-all.

“What I want to get out of the system is taxpayer support for speculative activity, and I want to look ahead,” Volcker said under questioning by Johanns.

“I tell you, sure as I am sitting here, that if banking institutions are protected by the taxpayer and they are given free rein to speculate, I may not live long enough to see the crisis, but my soul is going to come back and haunt you.”

Sen. Judd Gregg (R-N.H.), another committee member, said before the hearing that he can’t assess the proposals until he sees “hard language” because the implications are just too massive, and he also expressed doubt that the final administration proposal will actually line up with Volcker’s ideas.

But the respect Volcker commands across the aisle has him listening. “The guy has got a folk hero status when it comes to financial policy and deservedly so,” Gregg said.

“It means what he suggests is going to be looked at very seriously, because he’s somebody we should be taking seriously when he comes up with ideas.”

Sources: Politico, MSNBC

Ben Bernanke's Confirmation Uncertain After Scott Brown's Election

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Ben Bernanke No Sure Bet In The Senate



Fed Chairman Ben Bernanke may be Time magazine’s Man of the Year – but he hasn’t convinced senators he’s the man for the job.

In the wake of Tuesday’s Massachusetts stunner, Bernanke’s chances of returning for a second term as head of the Fed were thrown into doubt, as a pair of liberal Democratic senators on Friday jumped on the dump-Bernanke bandwagon.

It was no idle threat. Senate Majority Leader Harry Reid (D-Nev.) said he’d call a vote next week but couldn’t say for sure Friday that he has the 60 votes to confirm Bernanke by the time his term expires Jan. 31.

That raised the prospect of a fill-in Fed chief, which would shock a skittish stock market that already dipped 5 percent in three days.

And a Bernanke defeat would be a stunning blow to President Barack Obama, who interrupted his Martha’s Vineyard vacation to re-appoint Bernanke over the summer and now is forced to salvage a nomination that once seemed a shoo-in.

Blame the Scott Brown brushfire. Brown’s upset Senate victory in Massachusetts put the nation’s populist angst on vivid display – the same forces that have led senators, left and right, to target Bernanke for the past few months.

The anti-Bernanke fervor picked up steam this week after Brown’s victory, as senators turned up the volume on their complaints that Bernanke has been too beholden to Wall Street bankers and not attentive enough to the pain for middle-class families.

“It is time for a change – it is time for Main Street to have a champion at the Fed,” Sen. Barbara Boxer (D-Calif.) said Friday in announcing her plan to vote against Bernanke. “Dr. Bernanke played a lead role in crafting the Bush administration’s economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.”

On Friday, the White House was moving to firm up Bernanke’s chances. Chief of staff Rahm Emanuel and Treasury Secretary Timothy Geithner were working the Hill by phone to help him.

And Reid, who had withheld his endorsement of Bernanke after meeting him Thursday, signed on Friday, highlighting Bernanke’s role in staving off a worse recession – the work that won him Time’s honor and plaudits from many economists.

In an election year that’s being driven by populist voter rage over the state of the economy, many lawmakers are wary of casting a vote to support one of the chief architects of the U.S. response to the crisis.

But Bernanke’s supporters tout his role in staving off economic Armageddon once the crisis started and injecting more than $1 trillion in new money into the economy to prevent the economy from shutting down in 2009.

“I don’t want to see the Fed destroyed,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years as an official at the Federal Reserve Bank of New York. “People are so upset that they’re flailing left and right. We’re killing the dollar and confidence in the United States as a place to invest. There are issues that are so much more important than getting elected.”

At the Federal Reserve, where one source describes the mood as “weary exasperation,” aides scrambled to put together a plan for what happens if Bernanke does not receive a confirmation vote before his term ends.

In the event that Bernanke isn’t confirmed, several sources say, Federal Reserve Board Vice Chairman Donald Kohn likely would be elevated to acting chair of the U.S. central bank. Bernanke would be entitled to stay on the board until his term as a Fed governor expires in 2020, but the sources said Bernanke could instead return to a professorship at Princeton University.

Possible successors to Bernanke include three people currently advising Obama on the economy, former Fed chief Paul Volcker, Larry Summers and Christina Romer.

Kohn was traveling in Europe at the end of the week on Fed business, but strategy on the Bernanke confirmation was being led by former Enron lobbyist Linda Robertson, who is viewed as an effective advocate for the banking chief on Capitol Hill.

On Wall Street, executives predicted a dire market reaction if Bernanke’s confirmation fails. “A decision to kill the Bernanke nomination will cause a large and disturbing upset in global financial markets,” said economist Joseph Brusuelas. “Not just equities, but the dollar and interest rates will be immediately impacted.”

Wall Street lobbyists in Washington said they were quietly making the case for Bernanke on Capitol Hill, but were hamstrung by the politics. Because Bernanke has been criticized as too close to Wall Street, they said, the surest way to seal his fate would be for financial lobbyists to make a full court press to save his nomination.

“Three months ago, we thought this was a slam dunk,” said one financial services executive. “And today people think this may not even be a layup. There’s lots of concern in the markets that the politics of the Senate might derail him.”

And at the White House, staffers strategized over how to finesse the delicate politics of confirming a man who has become increasingly linked with the Wall Street bailout policies of the past year and a half. “[White House Chief of Staff Rahm Emanuel] and the other people are all engaged,” said an administration source.

“As the President has said before, he has a great deal of confidence in what Chairman Bernanke did to bring our economy back from the brink,” said White House spokesman Bill Burton. “And he continues to think that he's the best person for the job, and will be confirmed by the United States Senate.”

In the Senate, though, leadership aides said neither Democratic nor Republican leaders were whipping the vote as of Friday, a testament to how fractured the caucuses of both parties are on the fate of Bernanke. Democratic leadership aides said they did not have the votes to confirm Bernanke without significant support from Republicans.

Bernanke has come under fire from the left for being too close to Wall Street, and from the right for his role in extending government control of the financial markets. And both sides have complained that the Fed’s policy of lowering interest rates to spur the economy was part of the problem that led to the crisis of 2008.

And although most Senate watchers continued to predict that Bernanke will squeak through, speculation turned to what happens if he is rejected – and just who might take over one of the most powerful economic positions on the planet.

All the angst puts a rare spotlight on the otherwise-obscure vice chairman of the Fed, Kohn. Officials said Kohn sees the world largely the same way as Bernanke, and the Fed under his control wouldn’t take radically different steps than it has under Bernanke’s reign. “There’s no daylight that I'm aware of between Kohn and Bernanke,” said one former Fed official. “[Kohn has] spent his entire career at the Fed. He’s a creature of the institution.”

Kohn, a native of Philadelphia, is seen as a vital inside player inside the central bank. “He’s the glue that holds the Fed together,” said Patrikis. “If he were the acting chairman, it would be steady on course.”

Democratic leaders on the Hill have very little time left to gather votes before the Jan. 31 deadline. By Senate procedural rules, Majority Leader Harry Reid (D-Nev.) would need to file cloture – the procedural move to force debate – on the nomination by sometime Tuesday morning to ensure a final vote during the normal workweek,. The move is necessary because several Republicans and Vermont Independent Bernie Sanders plan to filibuster Bernanke nomination.

Late Friday, Reid released a statement offering an endorsement of Bernanke – but did not indicate when he will call a vote. “No one pretends for a minute that our economy is back at full capacity,” Reid said. “But Chairman Bernanke has worked hard to strengthen the economy in recent months . …He also deserves recognition for what didn’t happen: An expert on the Great Depression, Chairman Bernanke helped steer us away from a second one.”

But the Friday announcements by Boxer and Sen. Russell Feingold (D-Wisc.) opposing Bernanke brought the total of publicly declared “no” votes on both sides of the aisle to about a dozen.

And there are even more undecideds.

“I’m cogitating on it,” said Sen. Tom Harkin (D-Iowa). But he’s far from sold on Bernanke. “I just have some uneasy feelings that his mindset is not where we need to be in terms of the Federal Reserve right now.” Harkin said the White House had not reached out to him to support Bernanke.

Dodd, who defended Bernanke against liberal critics during the Democratic caucus lunch Wednesday, told reporters Friday that he doesn’t know where the votes stand but he believes his Democratic colleagues who plan to oppose the Fed chairman are making a mistake.

"If you want to send a worse signal to the markets right now and send us in a tailspin, it would be to reject this nomination. This is not naming someone to be an assistant secretary to something -- this is the most important central banker in the world,” Dodd said.


Sources: Politico, MSNBC, TIME

Obama Finally Lets Finance Whiz Paul Volcker Spread His Wings

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Obama's "Volcker Rule" Shifts Power Away From Geithner


For much of last year, Paul Volcker wandered the country arguing for tougher restraints on big banks while the Obama administration pursued a more moderate regulatory agenda driven by Treasury Secretary Timothy F. Geithner.

Thursday morning at the White House, it seemed as if the two men had swapped places. A beaming Volcker stood at Obama's right as the president endorsed his proposal and branded it the "Volcker Rule." Geithner stood farther away, compelled to accommodate a stance he once considered less effective than his own.

The moment was the product of Volcker's persistence and a desire by the White House to impose sharper checks on the financial industry than Geithner had been advocating, according to some government sources and political analysts. It was Obama's most visible break yet from the reform philosophy that Geithner and his allies had been promoting earlier.

Senior administration officials say there is now broad consensus within the White House and the Treasury for the plan advanced by Volcker, who leads an outside economic advisory group for the president. At its heart, Volcker's plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.

The proposals, which require congressional approval, are the most explicit restrictions the administration has tried to impose on the banking industry. It will help to have Volcker, a legendary former Federal Reserve chairman who garners respect on both sides of the aisle, on Obama's side as the White House makes a final push for a financial reform bill on Capitol Hill, a senior official noted.

Advocates of Volcker's ideas were delighted. "This is a complete change of policy that was announced today. It's a fundamental shift," said Simon Johnson, a professor at MIT's Sloan School of Management. "This is coming from the political side. There are classic signs of major policy changes under pressure . . . but in a new and much more sensible direction."

Industry officials, however, said they were startled and disheartened that Geithner was overruled, in part because they supported the more moderate approach Geithner proposed last year.

"His influence may have slipped," said a senior industry official who spoke on the condition of anonymity to preserve his relationship with the administration. "But you could also argue that it wasn't Geithner who lost power. It's just that the president needed Volcker politically" to look tough on big banks.

Geithner agreed with Volcker that banks' risk-taking needed to be constrained.

But through much of the past year, Geithner said the best approach to limiting it is to require banks to hold more capital in reserve to cover losses, reducing their potential profits. Geithner said blanket prohibitions on specific activities would be less effective, in part because such bans would eliminate some legitimate activity unnecessarily.

The shift toward Volcker's thinking began last fall, according to government officials who spoke on the condition of anonymity because the deliberations were private.

Volcker had been arguing that banks, which are sheltered by the government because lending is important to the economy, should be prevented from taking advantage of that safety net to make speculative investments.

To make his case, he met with lawmakers on Capitol Hill and gave numerous speeches on the subject, traveling to at least nine cities on several continents to warn that banks had developed "unmanageable conflicts of interest" as they made investments for clients and themselves simultaneously.

"We ought to have some very large institutions whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit," he said during one speech in Toronto. "They ought to be the core of the credit and financial system. Those institutions should not engage in highly risky entrepreneurial activity."

Gradually, Volcker picked up allies. John Reed, the former chairman of Citigroup, expressed his public support. So did Mervyn King, governor of the Bank of England.

His ideas began gaining traction within the administration in late October, when the president convened a meeting of his senior economic advisers in the Oval Office to hear a detailed presentation by the former Fed chairman.

There was no immediate change of course. But after the House passed a regulatory reform bill on Dec. 11 that was largely based on the Geithner's vision, the administration began to warm to Volcker's ideas, which had the political value of seeming tough on Wall Street, said sources in contact with the Treasury and White House.

At the time, administration officials were growing concerned that government guarantees designed to spur lending by letting banks borrow cheaply were instead funding banks' speculative investments and fueling soaring profits, said Austan Goolsbee, a member of the president's Council of Economic Advisers.

"We started coming out of the rescue and you saw some of the biggest financial institutions . . . who had access to cheap financing . . . use that money without lending or anything, just doing their own investments," he said. "That clearly started putting [the issue] on the radar screen for us."

Goolsbee said that Vice President Biden became a particular advocate for Volcker's approach.

In mid-December, the president formally endorsed Volcker's approach and asked Geithner and Lawrence H. Summers, the director of the National Economic Council, to work closely with the former Fed chairman to develop proposals that could be sent to Capitol Hill. The three men had long discussions about the idea, including a lengthy one-on-one lunch between Geithner and Volcker on Christmas Eve.

Summers and Geithner had been reluctant to take on battles that weren't at the heart of the problem that fueled the crisis. But ultimately, an administration official said, the two men concluded that reform needs to be about more than just fighting the last war -- it needs to address sources of future risk as well.


Sources: Washington Post, MSNBC

Pres. Obama's Crackdown On Big Banks Comes Too Late...More Lies!

Today Pres. Barack Obama announced his administration's efforts to place tighter restrictions on "Too Big To Fail" Financial Institutions.

Suddenly (after seeing Political Failure for Dems in the near future) he now decides to listen to Paul Volcker versus crooked Tim Geithner and complacent Larry Summers.

Well...

On the eve of Scott Brown's win, I'd say its a bit too late for these restrictions!

The Obama Admin. played around with Big Bankers for an entire year while lying to Consumers and Voters about implementing stronger Financial Consumer Regulation policies but did absolutely nothing.

In other words while standing in front of television cameras Pres. Obama sounded like a tough Chicago guy who wanted to enact "Change", however behind closed doors he schemed with Bankers to keep regular people like myself (Voters) under their feet.

This includes refusing to help Small Businesses create more Jobs.

At this point I no longer believe ANYTHING Pres. Obama says!

I also will NOT be voting him again if he runs in 2012 because he LIED.

Just because I'm Black doesn't mean I'm obligated to vote for a Black candidate.

No Politician is perfect because their Human but I don't like it when slick Lawmakers like Barack Obama attempts to use Chicago Politics or Reverse Psychology just to keep conducting "business as usual" in Washington, DC.

Pres. Obama was elected to help create a different atmosphere and treat ALL people fairly.

Instead he's created an almost totally Partisan, Mean-Spirited Political atmosphere and has reserved the best treatment only for America's Wealthy just as his lop-sided Health Care Bill demonstrates.

How can average people like myself have a Fair chance of rising up if Politicians like Barack Obama keeps stepping on us?

So just because I didn't attend Harvard, Yale or Princeton I'm a worthless citizen?

Who says so?

I'm just as valuable as any Politician in Congress because I'm a Free Citizen with Legal Rights!

Pres. Obama needs to know that just because he possesses a Harvard Law Degree he isn't the most Intelligent person on planet Earth!

In the world of politics Voters are the most people on planet Earth.

Martha Coakley didn't fail the Democrats, Barack Obama did!

As you can sense by the tone of this post I represent some of the same Populist Anger that helped Scott Brown win his U.S. Senate seat.

For the next three years unless I see REAL, BOLD, HONEST, TRANSPARENT LEADERSHIP coming from the Obama White House, I will NOT be voting for him again.

Not Rahm Emanuel's leadership!

Not Valerie Jarrett's leadership!

Not David Axelrod's leadership!

Not Michelle Obama's leadership!

Not Tim Geithner or Larry Summers' leadership!

Only Pres. Barack H. Obama's leadership!

NOTE:

Pres. Obama drop the Arrogance and get over yourself!

You were elected to serve the American people. All Americans NOT just Wealthy Wall Street Bankers.

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Sources: MSNBC, CNN, Whitehouse.gov, Youtube

John McCain, Maria Cantwell Reinstating The Glass-Steagall Act

"Big Is Bad" Catches On In Congress


The populist angst aimed at Wall Street banks is already spilling into Senate deliberations on regulatory reform, and a powerful new sentiment — big is bad — is being echoed by liberals and conservatives alike.

The anger at the nation’s financial behemoths is taking shape in a variety of ways, most notably in a bill from Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.), who are targeting big financial institutions such as JPMorgan Chase and Citigroup.

The bi-partisan duo’s bill would reinstate the Depression-era law that built a wall between commercial banking and the riskier activities of investment banking. The separation — originally set up in the Glass-Steagall Act — was repealed in 1999.

But reinstating Glass-Steagall has become something of a rallying cry among progressives, as well as some conservatives. They believe that allowing banks to provide all services to all people creates the very sort of “too big to fail” institutions that threatened the stability of the global financial order in 2008.

In other words, Big is Bad.

The idea has some powerful backers, including former Federal Reserve Chairman Paul Volcker — a giant in the financial world and also an outside economic adviser to President Obama — who literally has been traveling the world arguing in favor of returning to Glass-Steagall-type restrictions on what trading activities banks can engage in, though not a full return to the Depression-era restrictions.

But, as with anything in Congress, there’s also a clear political opportunity to be had with such a move.

“It doesn’t take a rocket scientist to know that Americans are really angry at the banks, and they feel like the administration and Congress are too cozy and have been too soft on them in terms of not really demanding that they change fundamentally,” said Heather McGhee, Washington director of Demos, a progressive think tank that supports the return to Glass-Steagall.

“Glass-Steagall rightly has sort of become this flag for something that would fundamentally change the way banks do business, something that would reassert the government’s role, a strong sort of government hand in between the Wild West market forces that caused our economy to tank last year,” she said.

For all its talk about “fat cats” in the banking industry, the Obama administration has not embraced reviving Glass-Steagall. Nor have leading lawmakers writing the main bills in Congress. Most experts scoff at the idea that the 1999 repeal — known as Graham-Leach-Bliley — had anything to do with the financial crisis, and the big banks wasted no time in warning Senate Banking Committee members that the Cantwell-McCain bill was misguided and bad for the economy.

“Reinstating Glass-Steagall is a misdiagnosis of the cause of the crisis,” with those who argue for it making a classic logical fallacy in contending that simply because Gramm-Leach-Bliley preceded the meltdown it must have caused it, said Rob Nichols, president of the Financial Services Forum.

What’s more, Nichols argued, the crisis also illustrated the benefits of diversification. “Many of the institutions that experienced the most turmoil during the crisis — namely, Bear Stearns, Lehman Bros., Merrill Lynch, Countrywide, WaMu, Indy Mac, AIG — were not financial holding companies, [the hybrid entities] permitted under Gramm-Leach-Bliley,” he said.

But the financial industry isn’t dismissing the Cantwell-McCain bill, or any other populist push, however remote their chances of becoming law may seem. As soon as Cantwell and McCain dropped their bill, lobbyists were knocking on doors of Banking Committee members to argue against the measure.

The Cantwell-McCain bill is not an isolated development, either. In the weeks ahead of the Dec. 11 floor vote on the House financial reform bill, Demos started getting calls from members looking for ways to toughen the bill by limiting what the banks could do, McGhee said. None of the resulting amendments made it through the House Rules Committee, however, including one from Rep. Maurice Hinchey (D-N.Y.) that would re-enact Glass-Steagall.

Hinchey introduced the amendment as a stand-alone bill the same day Cantwell and McCain introduced theirs. “The repeal of the Glass-Steagall Act was done to help large banks become enormous and to line the pockets of banking executives with more money than most Americans could ever dream of earning in their lifetime,” Hinchey said in a statement. “It was not done to help average working men and women in this country get ahead, and that was wrong.”

In the days after the House vote, House Majority Leader Steny Hoyer (D-Md.) said at a press conference that the House was discussing reimposing the banking limits. “As someone who voted to repeal Glass-Steagall, maybe that was a mistake,” Hoyer told reporters.

The effort is just the latest expansion of a populist push in Congress to beat back the largest, most powerful financial firms.

Rep. Paul Kanjorksi (D-Pa.), who is generally seen as a rather pro-business moderate on the House Financial Services Committee, pushed language that would empower federal regulators to pre-emptively break up large financial institutions that posed a risk to the economy, even if they were currently healthy. Progressive activists say the final language included in the House bill is actually not as tough as it sounds, but the financial industry nonetheless hates it.

In the Senate, Bernie Sanders (I-Vt.) introduced the “Too Big to Fail, Too Big to Exist Act,” which would require the Treasury secretary to break apart any financial institution deemed too big to fail. The Vermont independent has become a populist hero on the left and the right of the political spectrum for his crusade against Fed Chairman Ben Bernanke, a mission also rooted in his belief that the American people want a change in the way Wall Street functions, and Bernanke and the Fed he runs represent the status quo, Sanders says.

Both Cantwell and McCain describe their legislation in the language of Main Street’s ongoing economic angst coupled with anger at Wall Street’s return to outsize profits and bonuses.

“The American people want us to do something about the fact that capital is [not] flowing down to them. It is flowing in a direction that is making Wall Street huge profits. Nothing wrong with making profit, but this consolidation has squeezed the American public out of needed capital. And I think that capital could be going to investment in technology, to new business start-ups, to things that are about the ingenuity of America, not the ingenuity of toxic assets,” Cantwell said on MSNBC.

They also describe the legislation as a way to ensure that giant firms aren’t so big that they can gamble themselves again into the kind of trouble that requires taxpayer bailouts.

It remains unclear if any of these populist measures will make it into law, but some of the advocates following the financial reform process believe interest from members in such measures will only increase as jobs and the economy take center stage in the Senate and the 2010 election draws closer.

“This will be one of the hottest issues in the election,” predicted Heather Booth, director of Americans for Financial Reform, a coalition of consumer, labor and other pro-reform activists. “And the dividing line will be, Are you for Wall Street and the biggest banks, or are you for Main Street and real reform?”

"Too Big To Fail" Has Voters Steaming...Whitehouse's Progress Too Slow

Progress slowed on "Too Big to Fail" decision

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Arianna Huffington comments on people and political parties

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Obama's "Too Big To Fail" Bill Coming Monday

(Volcker: Risk of "too big to fail" remains. Paul Volcker, former Fed chairman, testifies to the House Financial Services Committee on the issue of Systemic Risk and the best way to deal with it.)

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New US bill on "too big to fail" fix seen Monday


The Obama administration plans to unveil on Monday a new plan for dealing with troubled financial giants, said a senior U.S. lawmaker, who also mentioned potentially big changes for the insurance industry.

Barney Frank, chairman of the House Financial Services Committee and a chief architect of the financial regulation overhaul, declined on Friday to give details on the administration's new bill, which would give the government the power to dismantle large financial companies that get into crises.

The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration's original plan, and may take out some language that would allow for temporary bailouts.

Giving the government "resolution authority" would serve as a rebuttal to the concept that some firms are too big to fail. Federal Reserve Chairman Ben Bernanke on Friday highlighted the need for this authority as well as other measures to reduce the likelihood that one firm could destabilize the financial system.

Frank also said Congress is discussing whether to create an optional federal charter for insurers.

Insurance companies are currently regulated by the states.

"If we do get into national chartering it will be in life insurance ... and maybe large commercial entities," Frank said during remarks to a banking symposium.

He said lawmakers would not likely try to federally regulate property and casualty insurers, however.

NO SUPER BANK COP

Frank's committee has cranked its efforts to overhaul financial regulation into high gear in recent days.

On Thursday it voted to approve legislation that would create a federal financial consumer watchdog. It has also passed new rules to police over-the-counter derivatives like the credit default swaps that helped fuel the financial crisis, and the full House has approved efforts to curb abusive pay practices.

While Frank's committee has made significant headway, the reform effort faces an uncertain future in the Senate and may be pushed into next year.

One idea that does seem to be gaining steam in the Senate is the move to consolidate all federal banking supervision into one super agency. Currently, four regulators share responsibility.

Christopher Dodd, chairman of the Senate Banking Committee, is a leading advocate of the consolidation, and has said he will push it forward despite regulators' reservations.

Frank, however, does not think it will pass.

"There is no remote chance of it happening," he said.

He said lawmakers will likely merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency, but allow the Federal Reserve and the Federal Deposit Insurance Corp to keep their supervisory roles.

Frank also commented on the rulings of pay czar Kenneth Feinberg, who on Thursday slashed compensation for many of the top earners at seven firms that have received billions of dollars in taxpayer funds.

"I think he did a good job," he said.

On the same day that Feinberg released his rulings for the seven firms, the Federal Reserve revealed its own pay guidelines to encompass a larger chunk of financial firms.

The Fed's bank pay guidelines, while not specific, are designed to curb forms of compensation that entice employees to take large risks.

Frank said the Fed's guidelines should have a large impact and said Congress is working to finalize legislation that would clarify that the Fed does have the authority to closely police pay.



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