Our guest blogger is Chris Geidner, an attorney who blogs at Law Dork, 2.0. You also can follow him at chrisgeidner on Twitter.

Concerns about marketplace failures require Congress to enact real changes altering the marketplace to ensure economic stability. Unfortunately, recent Supreme Court rulings raise questions about how far Congress can go in its regulatory mission.

The Court confronted challenges like these at the turn of the last century, and it likely will do so again as Congress and the President mobilize plans to reinvigorate the regulatory framework of our national government, implement health care reform and combat the effects of global warming.

How much power Congress has under the Commerce Clause is one of the areas in which a Justice Sonia Sotomayor — by her vote or, more importantly, through her leadership — could alter the workings of the Supreme Court. But it’s an area in which we don’t have much insight into her thoughts on the matter.

In 1936, the Supreme Court struck down wage and working condition requirements and hours limitations of a mining regulatory law in Carter v. Carter Coal Co. as falling beyond the scope of Congress’s authority, holding that “production is not commerce; but a step in preparation for commerce.” Although the Court soon turned away from such a theory of the Commerce Clause, the cramped reading, far from gone, recently has been revived.

In 1995, the Court struck down a provision of the Gun-Free School Zones Act in United States v. Lopez as violating Congress’ authority under the Commerce Clause. Soon thereafter, portions of the Violence Against Women Act were struck down in United States v. Morrison under the same theory.

The strongest dissent in both of these cases was authored by Justice Souter, the mild-mannered jurist who has been the Court’s chief proponent of the value of stare decisis. In Morrison, he arguably refused to concede to the precedential value of the Lopez opinion, stating, “Why is the majority tempted to reject the lesson so painfully learned in 1937?”

It was a question that needed asking. This line of cases hasn’t been greatly expanded in recent years. But then, nobody should expect it would’ve been. Republicans controlled both other branches of government during much of the time since, and regulatory laws were generally diminished, not expanded. Today, though, as President Obama and congressional Democrats seeking to expand the regulatory role of government, Souter’s voice might be needed once again.

With Souter’s retirement, then, the question we’re left to consider is two-fold: (1) Would a Justice Sotomayor come down on the same side of the issue as Souter, and, if so, (2) would Sotomayor carry on Souter’s legacy of vigorously fighting for congressional power in the Commerce Clause area?

Unfortunately, we don’t have much to go on from Judge Sotomayor’s rulings from the bench. Of the five cases in which Judge Sotomayor has participated where challenges were brought to various statutes following Lopez, none shed any real light on her view of the Commerce Clause because there are so few. More, those that exist do not present any significant issue in which her interpretation of the Commerce Clause, when freed from the constraints of the Circuit Court, could be gleaned.

One could presume from a generalized look at some of Sotomayor’s other opinions, from civil rights cases to class action lawsuits, that she is likely to vote the same way as Souter on such challenges to congressional power.

Justice Souter, however, left an admonition in Morrison — that “today’s ebb of the commerce power rests on error, and . . . leads me to doubt that the majority’s view will prove to be enduring law” — that calls for more. Progressives should be looking in Sotomayor for a leader who can turn Souter’s doubt into reality.

When the U.S. Treasury attempted to recapitalize the nation’s banks via TARP, it received stock warrants in return, which amount to the right to buy stock sometime in the future. The idea was that these warrants would become more valuable as the banks got healthier, which is how taxpayers would see “the upside” from the TARP investments.

Now that banks are hustling to pay back their TARP money, Treasury has to decide what to do with the warrants, and the options are either selling them back to the original bank or selling them to third party investors. So far, only one bank — Old National Bancorp of Evansville, Indiana — has worked out a deal with Treasury for the warrants. And according to an analysis by Bloomberg News, if Old National turns out to be the model for all the other banks, taxpayers may be shortchanged billions:

Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show….[Old National Bancorp.] gave the Treasury Department $1.2 million for warrants that may have been worth $5.81 million, according to the data. If Geithner makes the same deal for all companies in the rescue program, lenders may walk away with 80 percent of profits taxpayers might have claimed.

Goldman Sachs and JP Morgan are two of the banks leading the charge out of TARP, and reportedly “want to buy back the warrants and wriggle free of the government.” Linus Wilson, Assistant Professor of Finance at the University of Louisiana at Lafayette, has done the math and come up with what the warrants from these institutions are worth:

The U.S. Treasury holds 88.4 million of JP Morgan’s TARP warrants. These warrants on JPM are worth $20.20 each or about $1.79 billion according to my estimates. According to my estimates, taxpayers’ 12.2 million warrants on Goldman Sachs are currently worth $74.87 each or about $914 million dollars….Instead of JP Morgan and Goldman Sachs buying (or worse being given) the warrants from the Treasury, it is a better idea for the U.S. Treasury to sell those warrants to 3rd party investors.

In some ways, allowing the banks to purchase back the warrants at below-market prices would complete a sorry cycle, since Treasury (under former Secretary Henry Paulson) overpaid for the assets in the first place. But it seems like going the third party route best serves the taxpayers’ interest, which is what Treasury should ultimately be trying to do. As Sen. Jack Reed (D-RI) said, “taxpayers were there at a critical moment. They should enjoy the upside when these institutions recover.”

Earlier this month, President Obama released his plan for cracking down on corporations that use overseas tax havens, a practice that costs the U.S. billions in lost tax revenue every year. “Within minutes” of Obama’s announcement, Finance Committee Chairman Max Baucus (D-MT) was putting on the brakes by calling for “further study” of Obama’s proposals.

Baucus continued his waffling on tax havens today, rebutting a push by Rep. Lloyd Doggett (D-TX) and Sen. Carl Levin (D-MI) to hold off on a free trade agreement with Panama until the Panamanian government makes more of an effort to stop tax avoidance within its borders. At the moment, “Panama is one of only 13 countries – and the only current or prospective FTA partner – that is listed on all of the major tax-haven watchdog lists.”

“In this time of economic distress, we can no longer afford to ignore the billions of dollars of tax revenue lost to the U.S. Treasury due to the bank secrecy practices of Panama and other tax havens,” wrote Doggett and Levin. Baucus countered with this:

Noting calls by some Democrats for the White House to address worries about Panama’s banking secrecy before sending the [free trade agreement] to Congress, Baucus said he is concerned about the issue, too — but not enough to delay action. “I want to see progress on tax issues in Panama,” Baucus said at a hearing on the pact, “but we can and should move ahead on a trade agreement right now.”

Baucus seems to be perfectly content with punting the tax issue further and further down the road. But as Sen. John Kerry (D-MA) wrote today in Politico, the free trade agreement presents a great opportunity for pressing Panama to address tax havens:

Just as with every similar country, we need to protect against efforts by U.S. citizens to evade taxes and to stop terrorist organizations, drug cartels and other criminal groups from exploiting bank secrecy havens. In Panama’s case, we have an opportunity to use the prospect of opening our vast markets as leverage to win the long-sought commitment from the Panamanian government to sign and implement a tax information exchange agreement with the United States and to bring its banking laws into compliance with international standards.

The non-profit group Public Citizen found that the proposed free trade agreement with Panama “would remove key policy tools” for fighting tax avoidance and “would also conflict with U.S. government efforts to combat the global economic crisis by re-regulating finance.” It’s all well and good that Baucus keeps acknowledging that tax havens are a problem, but his actions make it seem like he’s hoping the havens will simply disappear on their own.

Today, McClatchy took a look at current oil prices, and came to the conclusion that its “not because supplies are tight or demand is high” that prices are rising, but rather that “Wall Street speculators — some of them recipients of billions of dollars in taxpayers’ bailout money — may be to blame“:

Big Wall Street banks such as Goldman Sachs & Co., Morgan Stanley and others are able to sidestep the regulations that limit investments in commodities such as oil, and they’re investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation.

According to McClatchy, “critics say this speculative flow of money into commodities markets is a self-fulfilling prophecy that’s distorting the usual process by which buyers and sellers set prices and is driving up the prices of oil, gasoline, grains and other essentials.” Both Goldman Sachs and Morgan Stanley have received $10 billion in TARP money.

Earlier in the week, the Washington Post published an article detailing the troubles that low-income communities have due to a lack of supermarkets and banking services. As Karen Dillon summed up, “despite a high number of customers and sufficient wealth to support large, full-service grocery stores and mainstream bank branches, many of these neighborhoods haven’t seen either in decades.” So the only options that residents of these communities have are overpriced corner stores and check cashing outlets that charge exorbitant fees.

According to a new report released by the Education Sector, the same problem is inherent in education. Conservatives like to claim that “choice” will be enough to reform the education system, and public schools will all be whipped into shape if a couple of charter schools open. Alas, the truth is not so simple:

Early advocates of school choice argued that increased choice would unleash market forces, including parental demand for good schools, entrepreneurial interest in building better schools, and competition among schools to serve students. Low-income, urban neighborhoods that have long suffered from low educational achievement, they said, would benefit the most from choice-based school reforms, as families wielded their new consumer power to drive improvements in their children’s education. But the past two decades of choice reforms have demonstrated that choice alone is insufficient to drive large-scale improvement. School districts have proven remarkably resistant to competitive pressure, parental demand has not culled poor-performing schools, and it is far more difficult to start and grow successful schools than originally envisioned.

The report found that while some charters in low-income communities have been very successful, many others simply fizzle, shut down, or are no better than their terrible public counterparts. This is an important point. It’s not enough to plunk down a charter school and say “there is a choice, therefore the work is done.” Deciding between two equally lousy choices isn’t really a choice at all.

The Education Sector advocates “establishing the informed demand necessary to support a market focused on school quality.” Indeed, unless people are well-informed enough to make an intelligent choice, the market simply doesn’t work. People don’t know what they are choosing between, and therefore true pressure to drive bad schools into oblivion doesn’t exist. And then far more must be done across the education spectrum, including expanding learning time and rethinking teacher pay and tenure policies. Only then will the education system start to get into the shape in which it needs to be.

According to a report today in Politico, Sen. Tom Harkin (D-IA) “is trying to resurrect the Employee Free Choice Act by reaching out to a group of Democrats looking for cover on the politically treacherous bill”:

Sens. Arlen Specter of Pennsylvania, Jim Webb of Virginia, Mark Pryor of Arkansas and Dianne Feinstein of California are participating in preliminary talks to modify the “card check” bill, according to lobbyists and aides. Aides say Harkin is holding daily, closed-door conversations with interested lawmakers, business groups and labor unions.

This is good news. Lost in much of the the EFCA debate, which mostly centered on the kerfuffle over “the secret ballot,” is the simple fact that labor reform is still necessary and has a good chance of getting through Congress. Various methods for reforming the union election process have been floated, including a proposal from Feinstein that would allow workers to mail in their ballots directly to the National Labor Relations Board. Other key provisions — including arbitration to ensure that workers who vote to form a union actually get a contract — are still being negotiated.

Plus, it’s not like the problems that EFCA is meant to address have gone anywhere. In fact, a new study out today from the Economic Policy Institute found that over the last 20 years “employer opposition [to unionization] has intensified…and the nature of campaigns has changed so that the focus is on more coercive and punitive tactics designed to intensely monitor and punish union activity”:

Although the use of management consultants, captive audience meetings, and supervisor one-on-ones has remained fairly constant, there has been an increase in more coercive and retaliatory tactics (“sticks”) such as plant closing threats and actual plant closings, discharges, harassment and other discipline, surveillance, and alteration of benefits and conditions.

The study found that “employers threatened to close plants in 57 percent of the campaigns and threatened to cut wages and benefits in 47 percent,” while firing pro-union workers 34 percent of the time.

Of course, the business lobby has already committed itself to opposing any compromise on EFCA. “Let us be clear and frank on this matter; there can be no acceptable ‘compromise’ on any issue of labor law reform due to the very real threat posed by EFCA,” wrote the Coalition for a Democratic Workforce, a front group composed of the Chamber of Commerce and the National Association of Manufacturers, among others.

Pressure from the business community has also led some senators, such as Blanche Lincoln (D-AR), to try to avoid the issue. Harkin, however, is threatening to bring the original bill to the floor. “We’re trying to get the necessary compromises made to get this through,” Harkin said, but if a compromise cannot be found, “it is my intent that we will put the original bill on the floor and make people vote on it.”

Via Ezra Klein, we have this chart from the Center for Economic and Policy Research, which shows the disparity between guaranteed paid sick leave in the U.S. and the rest of the world:

As Klein put it, “The light blue line measures paid sick days. This is what you use if you need to take three days off because you have a fever. The dark blue line is paid sick leave. This is what you use if you need to take three months off because you have cancer. Every other country on the list offers at least one. Most offer both. The United States is alone in guaranteeing neither.”

Yesterday, the Healthy Families Act was reintroduced in Congress, after going “nowhere during the presidency of George W. Bush.” The bill — introduced by Rep. Rosa DeLauro (D-CT) and Sen. Ted Kennedy (D-MA) — “would guarantee employees one paid hour off for each 30 hours worked, enabling them to earn up to seven paid sick days a year.” Employees could also use their time to care for a sick family member.

Lost productivity due to sick workers attending work and infecting other employees costs the U.S. economy $180 billion annually. For employers, the cost averages “$255 per employee per year and exceeds the cost of absenteeism and medical and disability benefits.” Providing sick days can also help cut down on the spread of infectious disease. And then there’s the simple moral argument against forcing ill workers to choose between their health and their paycheck.

As a Senator and during the presidential campaign, President Obama supported the Healthy Families Act. So will it fare better this time?

Our guest blogger is David Min, Associate Director for Financial Markets Policy at the Center for American Progress Action Fund.

A couple of weeks back, my CAP colleague Matt Yglesias asked whether Treasury might be trying to emulate the Japanese government’s response to its credit downturn, citing Richard Koo’s excellent book on the Japanese banking crisis.

Koo acknowledges that the Japanese response to its banking crisis, which consisted primarily of massive regulatory forbearance (propping up banks and putting off loss recognition) and stimulus packages to promote job creation, led to very little growth over time. But Koo challenges the conventional wisdom that the Japanese response was a failure, arguing in short that the massive devaluation of assets throughout the entire Japanese economy should have created a cataclysmic, Great Depression-like downturn, and that the fact that Japanese growth remained fairly stagnant was in fact a great victory.

Well, John Hempton over at Bronte Capital has just written a brief, but I think highly illuminating comparison of the Japanese experience with the roughly contemporaneous credit downturn in Korea:

Korea had a much worse recession than Japan. Vastly worse. Japan was just low growth for a very long time. By contrast the Korean economy crashed and burned. But it also recovered very fast and at one point (1999-2000) the Korean Stock market was 1932 Great Depression cheap. It bounced. It is my contention that the main difference between the Korean and Japanese crashes (and Korea’s case recoveries) was the funding of the banks. In this view Korea’s was so sharp because the banks simply ran out of money – and that caused massive liquidations across the economy – systemic failures.

One of the keys to the Japanese response to its banking crisis, according to Hempton, was its massive internal savings, which was fueled by a “multigenerational” ethos of saving instilled into “Japanese housewives” from a young age. So even though the Korean Chaebol industrial-bank complex model was similar in many ways to the Japanese Zaibatsu/Keiretsu model, the fact that heavy savings (even at zero percent returns) were not as embedded into Korean society meant that when the credit crisis hit, “the Korean banks — unlike their Japanese counterparts were short funds. Endless funding at zero interest rates was simply not possible.” Read more

Our guest blogger is David Min, Associate Director for Financial Markets Policy at the Center for American Progress Action Fund.

State Street Bank announced today that it would issue $1.5 billion in new stock, with the proceeds intended to be used to repay the $2 billion in preferred stock and warrants it issued the government under the terms of the Troubled Asset Relief Program. State Street is just the latest bank (joining Goldman Sachs, Morgan Stanley, JP Morgan Chase, and others) to announce its intention to try to exit the TARP program, which imposes some additional requirements on banks, including executive compensation caps and additional reporting requirements. However, with forecasters predicting additional downpours, it’s too early to pull back the TARP.

Even if we wish away the myriad criticisms about the results of the stress tests, including reports that banks were able to negotiate their results with the regulators, it’s not clear to me that we should allow the banks deemed “healthy” by the stress tests to so easily escape the additional oversight requirements that have been imposed on them in exchange for their participation in TARP.

Instead, the true test for whether banks are healthy enough to stand on their own should be that they can survive without access to the $12 trillion “alphabet soup” of federal subsidies, guarantees, and cheap financing that is currently providing easy profits for the financial sector. We should not be defining “healthy” banks as those that can “earn their way out of trouble,” when those earnings are entirely subsidized by the taxpayer.

At a bare minimum, banks seeking to opt out of the TARP oversight regime by repaying their TARP obligations should also be forced to opt out of the FDIC’s Temporary Liquidity Guarantee Program, which provides an explicit government guarantee on senior bank bonds (the FDIC ordinarily only guarantees deposits, and in return for this, they have extensive regulatory powers over the risks being taken by banks with these deposited funds), and a number of Fed programs which provided subsidized financing to troubled banks, secured by distressed assets such as toxic MBS and CDOs.

The principle governing banks right now ought to be this: if the taxpayer is helping you out, then you can’t opt out of the relatively minor restrictions imposed by TARP oversight. And the other side of the coin is this: if you want to opt out of those TARP oversight restrictions, then you also need to stop taking taxpayer money, both from TARP and elsewhere.

The Financial Times reported today that Congress plans to make June the month in which the future of financial regulation will begin to take shape:

Congress will next month start the biggest regulatory overhaul of the US financial system in decades, bringing into the open a frantic lobbying effort between banks, regulators and policymakers on what it contains and who pays for it…Details of the regulatory overhaul – which also includes increased supervision of the retail market for financial products, standardising rules governing deposit taking institutions and increasing oversight of over-the-counter derivatives – are still being debated.

Of course, most of the effort is going to focus on systemic risk regulation and a new resolution authority for taking over and breaking down large, complex firms, as well as figuring out what to do with derivatives like credit default swaps. But another idea that has been percolating is making the stress tests — which were just performed on the nation’s 19 largest banks — a permanent feature of the regulatory regime. Time’s Stephen Gandel laid out some of the case today:

In good times and bad, bank regulators are supposed to be probing financial firms to see if they hold adequate capital for the loans they make…But unless you are a bank examiner or some other industry insider, those so-called call reports are nearly impossible to read and understand.

What was different about the recent stress tests was that unlike the usual bank-by-bank examinations, the stress tests looked at all the banks as a group…The stress tests also looked out two years, instead of the usual one, as regulators gauged if banks could weather a worsening of the economy — where the stress in the name comes from — and not just whether they had enough capital to pay for current losses. Most importantly, the results of the stress tests were publicized and presented in a way that was easy for most people to understand.

And as Sebastion Mallaby pointed out, “if a bank blows itself up, it can take others down with it, damaging the economy and handing taxpayers the bill. So government has a duty to force banks to plan for bad scenarios.”

Of course, designing the tests in a way that actually puts the banks through a bit of stress and doesn’t allow for intense lobbying regarding the results would need to happen. The first series of tests seems to have been aimed as much at quelling fear as at actually assessing the strength of the banks. But in theory, the idea of periodically assessing the ability of the financial system to weather an economic downturn seems like an eminently sensible one.

The Washington Post ran an article today laying out in excruciating detail how expensive it is to be poor. As reporter DeNeen Brown put it, “the poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace.” And by far, the most striking problem to me was the extra costs associated with buying food. Consider:

You don’t have a car to get to a supermarket, much less to Costco or Trader Joe’s, where the middle class goes to save money. You don’t have three hours to take the bus. So you buy groceries at the corner store, where a gallon of milk costs an extra dollar. A loaf of bread there costs you $2.99 for white. For wheat, it’s $3.79. The clerk behind the counter tells you the gallon of leaking milk in the bottom of the back cooler is $4.99….The milk is beneath the shelf that holds beef bologna for $3.79. A pound of butter sells for $4.49…(At a Safeway on Bradley Boulevard in Bethesda, the wheat bread costs $1.19, and white bread is on sale for $1. A gallon of milk costs $3.49 — $2.99 if you buy two gallons. A pound of butter is $2.49. Beef bologna is on sale, two packages for $5.)

That will add up to a lot of money pretty quickly, especially if buying food for children is involved. PolicyLink has found that wealthy neighborhoods have “three times as many supermarkets as low-wealth neighborhoods,” and “prices at the corner stores that dot inner city neighborhoods …can be much as 49 percent higher than those of supermarkets, for a limited selection of canned and processed foods and very little, if any, fresh meat and produce.” So people in low income neighborhoods are paying much more money for far lousier food.

It’s actually in our economic interest to increase access to healthier food. For one thing, inadequate nutrition means less healthy people, which drives up health care costs. Second, studies have found that students from households with inadequate food have lower math scores and are more likely to have repeated a grade. Children who experience hunger are twice as likely to receive special education services as children who do not. This chips away at our human capital.

New York City has done some good work with providing tax incentives for supermarkets to move into low-income neighborhoods and with encouraging community gardening and the proliferation of farmer’s markets. If more cities initiated programs like these, that would be an excellent start to reversing what right now looks like a terribly vicious cycle of poverty, malnutrition, and economic immobility.

GM cleanup of the Bedford Superfund site.

President Barack Obama has nominated a lawyer for the nation’s largest toxic polluters to run the enforcement of the nation’s environmental laws. On Tuesday, Obama “announced his intent to nominate” Ignacia S. Moreno to be Assistant Attorney General for the Environment and Natural Resources Division in the Department of Justice. Moreno, general counsel for that department during the Clinton administration, is now the corporate environmental counsel for General Electric, “America’s #1 Superfund Polluter“:

Number five in the Fortune 500 with revenues of $89.3 billion and earnings of $8.2 billion in 1997, General Electric has been a leader in the effort to roll back the Superfund law and stave off any requirements for full cleanup and restoration of sites they helped create.

This February, General Electric lost an eight-year battle to “prove that parts of the Superfund law are unconstitutional.” One of the 600-person DOJ environmental division’s “primary responsibilities is to enforce federal civil and criminal environmental laws such as” the Clean Air Act, Clean Water Act, the Safe Drinking Water Act, and the Superfund.

Before General Electric, Moreno worked as a corporate attorney at Spriggs and Hollingsworth. Moreno’s name is found in the Westlaw database as an attorney defending General Motors in another Superfund case, the GM Powertrain facility in Bedford, Indiana:

Historical uses and management of PCB containing hydraulic oils and PCB impacted materials has contaminated on-site areas as well as the sediment and floodplain soil within Bailey’s Branch and the Pleasant Run Creek watershed.

Although General Motors entered into an agreement in 2001 with the EPA to clean up the site, a number of local residents whose land has been contaminated by polychorinated biphenyls (PCBs) have sued for damages in Allgood v. GM (now Barlow v. GM), in a contentious and caustic dispute over cleanup, monitoring, and lost property values.

During the Clinton administration, Moreno was involved in another controversial case, unsuccessfully defending the Secretary of Commerce’s decision to weaken the dolphin-safe tuna standard. In Brower v. Daley, Earth Island Institute, The Humane Society of the United States, and other individuals and organizations brought suit against the United States government for actions that were “arbitrary, capricious, an abuse of discretion, and contrary to law,” winning their case in 2000.

Today, USA Today noted one more problematic result of the housing crisis — the federal government is sitting on a lot of homes that nobody really wants to buy:

The combination of a deep recession and a foundering housing market has left the government with more than 50,000 houses on its hands — enough homes to fill a city the size of Riverside, Calif., or Miami. Now federal records show it’s struggling to unload the houses and facing billions of dollars in losses…In many ways, the government’s situation parallels what thousands of other homeowners are confronting: The houses it owns are harder to sell, they typically sit empty longer, and in many cases, their values cratered as the real estate market collapsed.

The government is desperately trying to offload these homes, so much so that the Department of Housing and Urban Development (HUD) lost “39 cents on the dollar for every home it resold last year,” and is set to lose even more this year. This is a pretty big problem that is only going to get worse as the foreclosure rate keeps increasing.

But selling the homes one at a time to individual buyers is not the only way to get them off the government’s hands. One other option is to bundle properties that are in the same general geographic area and sell them to investors to maintain as rentals. This could be a great way to bring much needed rental housing into distressed housing markets. CAP’s Andrew Jakabovics and Ellen Seidman from the New America Foundation go through the possible models to base such a program off of here.

A second option is to strengthen efforts to help communities purchase and rehabilitate foreclosed, vacant properties. These properties could then be sold to low- or moderate-income borrowers, with the understanding that any future profits on the sale of the home will be shared jointly by the homeowner and the public. As David Abromowitz put it:

Beyond the present benefits of economic stimulus, the current sharp home-price plunge is also a unique, once-in-a-generation window to establish a stable stock of long-term, affordable, shared equity housing. Allowing good affordable housing stewards to buy homes in these neighborhoods is responsible policy. The public gets a return on its investment now, and also long beyond the first homeowner is helped.

In any case, it makes no sense for the government to sit on these homes, particularly when you factor in the costs of upkeep. It’s far preferable that the homes get put to some sort of productive use.

Via Joe Weisenthal, we have Mark Patterson — an investor who “took advantage of the TARP’s matching funds” to purchase a Michigan bank — claiming that the taxpayer funded bank rescue is a “sham,” and that taxpayers will not see much of a benefit from their investment:

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers…Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.

We’ve expressed concern before that, under the Geithner plan, taxpayers shoulder an disproportional amount of the risk while not seeing enough of the upside. And indeed, according to a “convoluted deal” agreed to earlier this year, MatlinPatterson has come to own 80 percent of the shares in Flagstar Bancorp of Michigan, while the US government “has ended up with under 10 percent.”

A few weeks ago, the banking industry was able to kill off legislation that would have allowed bankruptcy judges to cram-down mortgage payments for troubled homeowners, leading Sen. Dick Durbin (D-IL) to proclaim that the banks “are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

Durbin is back at it again today, joining Sen. Kit Bond (R-MO) to propose an amendment to the Credit Cardholder’s Bill of Rights that “would allow discounts for debit cards and ban retaliation against retailers who charge less for transactions that don’t involve credit cards,” which is somehow not prevented right now. And guess who is standing in the way, according to the Wall Street Journal:

Heavy pressure from banks could force lawmakers to shelve the measure Thursday to avoid sinking the broader bill.

Currently, merchants face penalties if they offer discounts to consumers who pay with cash or debit cards, and the banks and credit card companies want to preserve the status quo. Andrew Leonard summed up the situation like this:

I’m with Durbin, as is, I think, a large swath of the general public. How is it even possible that the banking industry could exert “heavy pressure” after having been bailed out by Congress to the tune of so many hundreds of billions? It is preposterous.

Sen. Harry Reid (D-NV) has said that he hopes to have the complete credit card bill pass by next Friday.

The Hill today has some details about how little oversight American International Group (AIG) had before it blew up, requiring a $180 billion taxpayer-funded bailout. Evidently, “in the eight months before AIG received a taxpayer bailout…top officials at the firm’s main federal regulator paid scant attention to the troubled insurer”:

Then Office of Thrift Supervision (OTS) Director John Reich and then Deputy Director Scott Polakoff held no meetings dedicated to AIG until a 45-minute conference call on Sept. 15, according to a review of 2008 calendars. The next day, AIG got $85 billion as part of a bailout that has since more than doubled. Overall, a review of calendars for six key agency officials…indicates that AIG garnered little attention from high-ranking OTS officials in Washington.

For what its worth, OTS has already said that it did a lousy job keeping track of AIG’s activities. But this report also speaks to the larger problem of gaps in the regulatory framework.

The trouble with a firm like AIG is that it is immensely complicated, and operates in many different spheres within the financial system. It began as an insurance company, but wound up grafting on a hedge fund and selling credit default swaps (CDS), which are not a traditional insurance product. Thus, it falls cleanly under no agency’s direct jurisdiction, and trying to blame one agency for the company’s downfall doesn’t really get to the crux of the problem.

So what can be done to ensure that a second AIG doesn’t come along? Yesterday, Treasury Secretary Tim Geithner took a good first step by announcing that he “is asking Congress to extend its oversight of the financial system to include the shadowy market of derivatives,” including CDS. Under the plan “companies like AIG would have to prove they have enough reserve capital to support the sale of derivatives.” Provided that regulators actually follow through with their responsibilities, this will certainly help.

Also, this is one more reason that the financial system could use a systemic risk regulator, which would be able to watch for systemically dangerous financial activity, regardless of where it’s originated. An entity watching for systemic risk would provide one more buffer against firms crossing into new territory. And after seeing what these firms were able to do to the economy, we can use all the buffers that we can find.

As part of its budget, the Obama administration has proposed streamlining the student loan process by ending government subsidies to private loan companies. Under the current arrangement, the government actually pays student loan companies to originate and service loans and guarantees loan repayment up to 97 percent, which generates huge profits for the loan industry with very little risk.

As Justin Fox pointed out, “over the past two decades, student lending became a textbook case of a privately run, government-subsidized program that delivered a worse, more-expensive result.” Thus, the Obama administration wants to cut the subsidies and directly make loans, saving $94 billion over the next decade. But on the Senate floor yesterday, Sen. Lamar Alexander (R-TN) explained that he wants the government to keep on turning free money over to loan companies, because it ensures that students have a “choice”:

[Obama] wants another Washington takeover, this time of student loans. Instead of letting 12 million students decide they would prefer to borrow from 4400 institutions on campuses all across America — 4400 campuses, 2000 institutions, they’re saying, no, everybody lines up at the United States Department of Education to get your student loan…It makes no sense to turn the U.S. Department of Education into a national bank for student loans. It should not be done.

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Alexander is a perfect example of what Barron Young Smith calls “free-market ideologues, who hold that a government program is somehow less socialistic when business is allowed to take a huge cut.”

As the New York Times wrote, the lender subsidy program is “wasteful and all-too-corruptible.” Private students loans are more expensive and tend to have higher interest rates than direct government loans, but students were being steered towards them by financial aid offices. “[Private loans] are expensive, risky sources of credit, like a credit card or a sub-prime mortgage or a payday loan,” said Lauren Asher of the non-profit Project on Student Debt. “They may be helping you pay some bills but it comes at an extremely high cost, and a cost that you can’t predict.”

In recent years, financial aid has failed to keep up with the rising cost of education, leading to more and more borrowing by students. Defaults on student loans “are at their highest rate since 1998, and likely will go higher,” while America’s educational attainment continues to fall. In light of all this, preserving the subsidies is what actually “makes no sense.”