Last month, the Obama administration released a set of proposals to limit bank size and risk-taking, including a limit on proprietary trading (banks trading for their own benefit) which is being called the “Volcker rule,” in honor of former Federal Reserve Chairman and outspoken bank critic Paul Volcker. House Financial Services Chairman Barney Frank (D-MA) said at the time that he could see the proposals becoming law within six months.

However, the Financial Times is reporting that the Volcker rule will “either be dropped or significantly modified in the Senate.” A staffer for Senate Banking Committee Chairman Chris Dodd (D-CT) said the justification for weakening or discarding the limits is simply that Republicans, including banking committee ranking member Sen. Richard Shelby (R-AL), don’t like them, and Dodd wants the bill to be bipartisan:

A Dodd staffer said the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform. “Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan,” the staffer said. “He is not going to risk bipartisan support to make the White House happy.”

There have already been reports that Dodd is thinking of dropping the very necessary Consumer Financial Protection Agency (CFPA) from his proposal, and ditching the Volcker rule would be one more instance of the interests of the banking sector trumping the interest in a secure economy. Plus, Dodd seems to be giving Shelby and the Senate Republicans effective veto power over various aspects of regulatory reform in an effort to drum up some Republican votes, which seems to be a fool’s errand. After all, Shelby said last week that he is perfectly fine doing nothing at all to rein in the banks.

In fact, just about every regulatory reform measure that Democrats have proposed has met with resistance from Republicans, if not outright scorn. Bank tax? No. Consumer Financial Protection Agency? No. Resolution authority? Nope. Breaking up “too big to fail” firms? No. Derivatives regulation? No. Consolidating bank regulators? Nope.

And just take a look at this memo from GOP wordsmith Frank Luntz — last seen teaching Republicans how to obstruct health care reform — which details how to kill regulatory reform outright. As the Huffington Post’s Sam Stein reported, Luntz “urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy,” regardless of the bill’s actual contents.

The most pernicious part of the memo is Luntz’s tip that “frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout.” This, despite the bank bailout and regulatory reform legislation having nothing to do with each other, and the fact that the legislation passed by the House last year puts measures in place that would prevent future bailouts.

When the Volcker rule was first proposed, Rep. Scott Garrett (R-NJ) asked “do you really want to start confining the banks and their ability to make profits?” And that seems to sum up the GOP view — anything less than a system in which the banks are free to wheel and deal to their hearts’ content is unacceptable. So instead of caving and crafting a regulatory reform bill that does nothing to fundamentally secure the financial system, Dodd should just bring a solid bill to the floor and dare Republicans to vote against it.

Last Saturday, at the lobbyist-organized GOP retreat, President Obama called out GOP strategist Frank Luntz for pursuing tactics meant to simply “box in Obama” rather than pursue substantive policy debate. True to form, Luntz has released a new memo — obtained by the Huffington Post — which lays out the arguments and language Republicans should use to kill financial reform. Luntz, who gained national recognition for his role in shaping the buzzword-heavy Contract for America with Newt Gingrich in 1994, has built a sizable business selling his messaging advice to both corporations and Republican campaigns.

The new memo instructs opponents of financial reform to simply lie about reform legislation, and to twist economic anxiety resulting from the recession into fear of any government effort to fix the underlying cause of the financial crisis. The most dishonest argument is that financial reform would “punish” taxpayers while rewarding “big banks and credit card companies.” In reality, top financial industry lobbyists are not only fighting proposed oversight regulations, but have said recently that they are opposed to “any regulation” at all.

Luntz, ever the publicity hound, leaks his memos out to the media to claim credit for the Republican charge against reforming Wall Street. While he is certainly a driving force behind much of the GOP misinformation, a closer look at his client list reveals that he is in fact being paid by the finance industry:

– Luntz client Ameriquest Mortgages: The proposed Consumer Financial Protection Agency (CFPA) would eliminate predatory mortgages. Ameriquest, America’s “sub-prime leader,” has been prosecuted by Attorney General Richard Blumenthal for inflating property values so borrowers could get bigger loans, imposing upfront fees without reducing interest rates as promised, and intentionally deceiving lenders with hidden penalties and interest rates on final loan documents.

– Luntz clients Merrill Lynch and Bear Stearns: Under proposed financial reform, big banks, like Luntz clients Merrill Lynch and Bear Stearns, would face a new structure designed to police financial products, prohibit predatory ones, and require clear forms and disclosures. The CFPA would also help regulate hidden bank fees and other bank abuses.

– Luntz client American Express: The CFPA would regulate the credit card industry, preventing predatory interest rates and fees.

Nearly every attack recommended by Luntz is not grounded in reality. For instance, he calls for opponents of reform to label a CFPA head an “unaccountable” “czar.” But the legislation clearly states that the CFPA’s Director would be appointed by the President, and then confirmed by the Senate. Luntz also charges that reform advocates are behind “lobbyist loopholes” in the bill. However, the most controversial loophole was inserted by Rep. John Campbell (R-CA), whose amendment allows an exemption for auto dealers. Of course, Campbell still tried to kill financial reform once it arrived on the House floor.

Confusing the public is the point of Luntz’s work. In an interview explaining his smears against health reform, Luntz told the New York Times last year that it did not matter what the actual policy offered — he would still call it a “Washington takeover.”

Today, the Obama administration released its fiscal year 2011 budget. As the Washington Post put it, the proposed budget “calls for billions of dollars in new spending to combat persistently high unemployment and bolster a battered middle class. But it also would slash funding for hundreds of programs and raise taxes on banks and the wealthy to help rein in soaring budget deficits.”

The administration is trying to walk the fine line between not choking off an economic recovery and addressing the country’s long-term deficit and debt problems. And as many news outlets have already theorized, no matter the proposal, the budget is going to be criticized by Republicans for failing to lay out enough in terms of deficit reduction.

Sure enough, Sen. Judd Gregg (R-NH) was on Fox News bright and early to criticize the budget, and lay out his own set of nonsensical deficit reduction steps, including implementing a hard spending freeze today. Watch it:

With this segment, Gregg proved once again that he is the epitome of a deficit peacock: he likes to holler about deficits without actually taking deficit reduction seriously. Of his four proposals that supposedly would reduce the deficit in the long-term, two of them — canceling the stimulus and the Troubled Asset Relief Program (TARP) — would be one-off steps that have nothing at all to do with the long-term fiscal situation, since neither of those programs extend much past 2011. Gregg’s other ideas amount to embracing Medicare savings that he voted against during the health care debate, and putting in place a spending cap that would do great anti-stimulative harm to the economy in the immediate future.

In the administration’s budget, meanwhile, medium-term deficits stabilize in the range of 3.9 percent of GDP. But the administration’s proposed deficit commission — which it is planning to create by executive order — will supposedly be charged with finding a path toward “primary balance” (which is balance excluding interest payments on the debt) by 2015. This closely corresponds to the Center for American Progress’ path toward fiscal balance, which advocated primary balance by 2014 and full balance by 2020. Primary balance, if achieved, would stabilize the debt-to-GDP ratio at an acceptable level and lays the groundwork for full budget balance.

So it’s getting to that last step that still remains the question. And, of course, it will be up to Congress to actually implement the spending cuts that the administration has proposed and to embrace any commission proposals, should they materialize. But this budget — in terms of its deficit impact — is an encouraging start.