Today, Sen. Charles Grassley (R-IA) appeared on CNBC to discuss President Obama’s financial regulatory package, which is being rolled out tomorrow. While he was broadly supportive of the proposed reforms, Grassley has evidently come to the conclusion that there is no problem with financial institutions being “too big to fail,” because the current crisis was caused by banks simply going broke:

Listen, the banks got into trouble not because they were too big but because, simply, they were broke.

Watch it:

Yes, banks going broke was part of the problem. But small banks go broke all the time without threatening the entire financial system and requiring billions in federal bailout money. This year alone, the Federal Deposit Insurance Corp. has closed down 37 different banks.

But other institutions — think Citigroup — were so big, complex, interconnected, and tied up in non-traditional banking instruments that they couldn’t go bust without taking a sizeable portion of the financial world down with them. And that was the real problem. For instance, AIG, which isn’t even a bank, sold so many credit default swaps — and thus had so much outstanding debt that it couldn’t cover — that its failure could have pulled down a host of other institutions.

As part of its regulatory reform package, the Obama administration is asking for a resolution authority “to allow the unwinding of troubled non-bank financial institutions.” And while the plan will reportedly include higher liquidity and capital requirements for larger banks, I wish there was a bit more emphasis on the approach to banks advocated by Paul Volcker, chairman of the Economic Recovery Advisory Board: “Keep them small, so that any failure won’t have systematic importance.”

Our guest blogger is Josh Rosenthal, Special Assistant to the External Affairs Department at the Center for American Progress Action Fund.

As Congressional leaders work to determine the final details of the Employee Free Choice Act, workers in Tar Heel, North Carolina continue to learn firsthand why the legislation is so important.

Yesterday, the Fayettesville Observer reported that six months after successfully voting to join a union, workers still do not have a first contract at a Smithfield Packing Co. plant. Smithfield’s stalling is par for the course, after the company spent fifteen years using harsh employer intimidation (including forcing an employee to stamp “Vote No” on dead hogs) to prevent a union from forming. A study by John-Paul Ferguson of MIT illustrates just how common this situation is:

Even after a majority votes for a union, many units fail to get a contract. Only 56 percent of units in which a majority of employees voted for a union and were certified for bargaining by the NLRB were successful in reaching a first contract. Only 38 percent of such units reached a contract within one year.

The Employee Free Choice Act would stop Smithfield’s delay tactics, by allowing either unions or employers to bring in federal mediators if contracts stall out after 90 days. Thirty days after that, an arbitrator would be brought in to work through any final hurdles. After months of lies about the majority sign-up aspect of the bill, conservatives have begun to turn their sights on binding arbitration. The Wall Street Journal calls it “federal wage setting” and fearmongers about the influence of “political, er, incentives.”

Unsurprisingly, the Wall Street Journal’s fears are unfounded. As arbitration experts Thomas Kochan and Arnold Zack explain, “arbitrators would have to meet the standards of experience, expertise and mutual credibility and acceptability by business and labor leaders,” and employers would help choose the arbitrator.

The Wall Street Journal’s lies can’t overcome what the Smithfield workers have learned first hand. America needs labor law reform that creates a path to a first contract, along with a fair process of joining a union and tough penalties for lawbreakers.

Tomorrow, as part of its plan to overhaul the nation’s financial regulation system, the Obama administration plans to announce the creation of a new consumer protection agency. According to CNN Money, “its mission will be to protect consumers from deceptive or dangerous mortgages, credit cards and other financial products.”

Already, the banking lobby — which has been quietly moving against multiple facets of the Obama regulation plan — is voicing its displeasure with the proposal:

“It’s bad for the consumers,” said Steve Bartlett, president of the Financial Services Roundtable, a lobbying group for banks. Financial industry advocates object to the idea of carving out the enforcement of consumer protection from the mandates of existing regulatory agencies that oversee companies. They argue that consumer protection is intertwined with ensuring that a financial firm is on stable footing. “Give the power for consumer protection to the agencies that have real power,” Bartlett said.

But the current economic mess has revealed that the “agencies that have real power” actually don’t have any power, particularly when it comes to consumer protection. They are simply too far removed from the action to get an adequate sense of how financial products are being marketed to consumers on the ground level. They are looking out for the safety of institutions, not the well being of an individual consumer getting suckered into a bad mortgage or credit card deal.

As Professor Elizabeth Warren — a staunch advocate of a consumer protection council — told The Wonk Room, “all these lousy mortgages got sold, one family at a time…If we had had just basic safety standards in place from the beginning, then we never would have fed these into the front end of the financial system.” And that’s the point of the new council — to watch the origination of these products. Various states tried to regulate mortgages at the ground level back in 2002 and 2003, and were effectively stopped by the Bush administration’s regulators. How many toxic assets would have never found their way into the system if those efforts had been allowed to proceed?

One financial services lobbyist who spoke to Reuters predicted that the consumer protection agency will be stripped out of the final regulation package. If that happens, it will be to the detriment of consumers and to the advantage of the banks that are throwing their weight around Capitol Hill.