Last month, Kansas City Federal Reserve President Thomas Hoenig openly advocated for the “dismembering” of financial firms that are “too-big-to-fail.” He said that carving out the portions of a firm that are taking risks with taxpayer dollars is a “fair thing to consider.”

Many other economists and elected officials have also thrown their support to breaking up systemically risky financial firms, and today they were joined by Dallas Fed chief Richard Fisher. In a speech before the Council on Foreign Relations, Fisher said that “a truly effective restructuring of our regulatory regime will have to neutralize what I consider to be the greatest threat to our financial system’s stability — the so-called too-big-to-fail, or TBTF, banks”:

Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size — more manageable for both the executives of these institutions and their regulatory supervisors. I align myself closer to Paul Volcker in this argument and would say that if we have to do this unilaterally, we should…And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis.

Fisher has previously called huge megabanks “the blob that ate monetary policy,” saying that “the very existence of the blob of banks considered as too big to fail blocks, or seriously undermines, the mechanisms through which monetary policy influences the economy.”

As The Atlantic’s Daniel Indiviglio wrote, “breaking up systemically risky firms is the most direct way to address the too big to fail problem. It would be messy, but it’s also the only way we can have some certainty that firms can collapse without taking the entire economy down with them. It’s nice to see another Fed president join the cause, but unless others follow, it might not much matter.” Indeed, the tide in Congress seems to be moving away from even the more moderate provisions in the Volcker Rule, which would bar banks from trading for their own benefit with federally insured dollars, but stops short of explicitly breaking them up.

As James Kwak wrote, the current regulatory reform bill moving in the Senate is “a least-common-denominator reform package that leaves the basic financial system intact.” And while a robust resolution authority (like that in the regulatory reform package passed by the House last year) will go a long way toward preventing a financial firm’s collapse from costing taxpayers money, it’s still legitimate to ask why we would allow financial firms to exist that we know, from previous experience, are big enough to threaten the entire economy.

Our guest blogger is Bracken Hendricks, a Senior Fellow with American Progress Action Fund and the founding Executive Director of the Apollo Alliance.

Yesterday President Barack Obama announced details of his proposed $6 billion energy efficiency rebate program, known as Home Star, at Savannah Technical College in Georgia. Informally known as “Cash for Caulkers,” the Home Star program would provide immediate rebates of up to $3000 to homeowners who invest in making their homes more energy efficient. President Obama described how Home Star helps Americans on several fronts:

Now, we know this will save families as much as several hundred dollars on their utilities. We know it will make our economy less dependent on fossil fuels, helping to protect the planet for future generations. But I want to emphasize that Home Star will also create business and spur hiring up and down the economy.

With unemployment in the construction industry at almost 25 percent, it is imperative that the Obama Administration implement innovative, effective programs to spur job creation in what has been termed the tool-belt recession. The tool-belt recession has a deep and far-reaching impact on communities. Construction job losses touch every state in the union and hit local economies hard, spilling over to other parts of the economy as well. Job loss in manufacturing industries tied to construction is higher than in manufacturing as a whole. Many construction related industries have shed 20 percent to 30 percent of their jobs since the recession began. Jobs in the construction sector and related industries are suffering more compared to other parts of the economy. It is time for a national response to this tool belt recession. Here are some of the numbers:

– The unemployment rate for experienced workers in construction was 24.7 percent in January 2010.

– Total construction payroll employment has dropped by 2.1 million jobs since 2006, with residential construction down by 1.3 million, or 38 percent.

– For 2009, 12.4 percent of all unemployed workers were previously employed in the construction industry.

– There have been 134,000 jobs lost (10 percent) in construction-related retail, such as building supply stores and lumber yards, since December 2007, with 186,000 lost (14 percent) since July 2006.

With demand for construction jobs at near depression levels, stimulating consumer demand for residential energy efficiency is a smart business. It creates high-paying jobs for idled construction workers, boosts sales of American-made building materials, and saves consumers money. American companies are ready to hire back crews if we can jumpstart demand for projects. Home performance contracting for energy efficiency is one bright spot on the horizon for the building trades today.

Matt Golden, CEO of home performance retrofit contractor Recurve, and co-author of our study explains:

The tool belt recession is devastating. There is an urgent need in every state of the union to generate skilled, high-paying, long-term construction and manufacturing jobs to grow our economy. But there is hope. As an employer in the hard-hit state of California, I have seen my efficiency business grow by 60 percent, even as the construction industry has lost over 35 percent of construction jobs, around me.

It’s time to launch a national Home Star program which includes incentives for homebuyers to invest in the energy efficiency of their homes, which will jumpstart demand for labor. Congress can quickly create jobs with policies to expand investment in commercial and industrial energy efficiency and financing for retrofit jobs.

Read the whole memo about taking on the tool belt recession here.

Sens. Chris Dodd (D-CT) and Bob Corker (R-TN) are working on a regulatory reform proposal that, instead of creating an independent Consumer Financial Protection Agency (CFPA), would place a consumer protection division inside of the Federal Reserve. Several Democratic members of the Senate Banking Committee are pushing back on this idea, noting that the Fed has been a dismal failure with regard to its already existing consumer protection responsibilities.

“In my 20 years of trying to get the Federal Reserve to properly protect consumers, it has been an uphill, and very often unsuccessful, battle. I am very leery of any consumer regulator being placed inside the Fed,” said Sen. Chuck Schumer (D-NY). “Why put consumer protection back in the Fed after it’s been so woefully neglected?” asked Sen. Jeff Merkley (D-OR). Dodd himself has also said that the Fed was “an abysmal failure” when it came protecting consumers.

House Financial Services Chairman Barney Frank (D-MA) called the proposal a “bad joke.” And it’s not only Democrats questioning the idea. Sen. Mike Johanns (R-NE), who opposes creating an independent CFPA, noted that “a few days ago, the Fed was in some degree of disfavor. The talk was giving it less power, not more. So what an unusual phenomenon has developed over the last few days.”

But there is one group that is thrilled with the idea of the Fed keeping its power — the banks:

Banks say placing the agency with the Fed alleviates their concern that an independent entity would ignore the health of the financial system…Banking lobbyists say the Fed’s knowledge of the banking system makes it well-suited to coordinate rules on credit cards and other consumer financial products.

“Regulation of the products should be connected to the regulation of the bank,” said Scott Talbott, senior vice president of government relations for the Financial Services Roundtable, which represents the largest financial firms in the country.

The huge amount of support that banks are lavishing on the Fed should be telling. In a new letter to the Senate Banking Committee, six groups representing the financial industry are asking that the Fed not be stripped of any of its regulatory authority. Could it be because the Fed consistently sided with them and failed to crack down on their deceptive yet profitable lending?

As Demos’ Heather McGhee said, leaving consumer protection responsibilities with the Fed “would codify consumer protection’s secondary status in federal financial regulation.” “Consumer abuses were one of the root causes of the financial crisis and regulatory reform legislation should address this problem,” added Andrew Gray, a spokesman for FDIC Chairman Sheila Bair. “The FDIC has been on the record that the ideal way to do this is through an independent agency with the power to write rules for the banks and non-banks alike.”

Last year, commercial banks spent more than $50 million lobbying, “not to mention the money they donated, through PACs and individual donations, to candidates.” Will all that money buy them a reprieve from a new agency explicitly meant to prevent their worst practices?