Since the revelations regarding the robo-signers — bank employees who were approving foreclosures without verifying basic information — first broke, the banks have attempted to frame the issue as one of simple paperwork mistakes like misspelled names, and not flagrant disregard for due process and property rights. Both Bank of America and Wells Fargo tried to sweep the robo-signers under the rug, quickly refiling foreclosure paperwork and not owning up to improper foreclosures.

In response to the robo-signing scandal, all 50 state Attorneys General launched a coordinated investigation into the banks’ practices. During a Senate Banking Committee hearing today, Iowa Attorney General Tom Miller — who is leading the AG’s effort — said the AGs don’t agree with the banks that this is a technical issue that boils down to paperwork errors, but is an “affront to state courts”:

First of all, let me say, very clearly, we don’t view that as a technical issue. It’s an issue that is an affront to state courts. Signing an oath to produce a judgment of foreclosure in a court is a very very serious matter.

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Miller also chided the banks for not getting their mortgage modifications programs up and running in a timely fashion, calling them “ad hoc.” “That just hasn’t come together,” he said.

Today, the Congressional Oversight Panel for TARP — which was previously headed by Harvard Law Professor Elizabeth Warren and is now led by former Sen. Ted Kaufman (D-DE) — released a report saying that if the banks portrayal of the robo-singing situation is right, then “concerns about mortgage documentation irregularities may prove overblown.” But, it added, “the worst-case scenario is considerably grimmer”:

In this view, which has been articulated by academics and homeowner advocates, the “robo-signing” of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. In essence, banks may be unable to prove that they own the mortgage loans they claim to own…If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe.

This gets to the very heart of the matter. The banks want to submit new paperwork and quickly move on, but as Yves Smith wrote, “by definition, a replacement of a robo signed affidavit is an admission the earlier submission was improper, hence a fraud on the court.”

And that fraud can lead to a huge amount of systemic risk within the financial system, as it calls into question the validity of loads of mortgage securities. As the Oversight Panel noted, “to put in perspective the potential problem, one investor action alone could seek to force Bank of America to repurchase and absorb partial losses on up to $47 billion in troubled loans due to alleged misrepresentations of loan quality.” If a bunch of banks need to swallow losses like that, the financial system is in for a bumpy ride.

Last week, the co-chairs of President Obama’s debt commission — former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles — released their proposal for balancing the nation’s budget. While the plan contained some good ideas (like cutting agriculture subsidies), it also included some profoundly bad ones, like raising the retirement age for Social Security and implementing seemingly arbitrary caps on government revenue. Plus, the plan called for draconian cuts to popular and vital services, as it laid out about one dollar in non-defense discretionary cuts for every dollar in defense cuts.

At its core, the plan tilts toward the conservative budget solution, relying on spending cuts for 75 percent of its total deficit reduction. But today, Rep. Jan Schakowsky (D-IL), who also serves on the debt commission, laid out an alternative proposal, saying that the Bowles-Simpson proposal “would have serious consequences for lower and middle class Americans, and that is why I cannot support it.” “I am releasing my own plan today because I believe that there is a better way to achieve our goal – one that protects the poor and the middle-class,” she added.

Schakowsky’s plan gets the budget into balance by:

– Cutting $110.7 billion from the defense budget (compared to $100 billion in the Bowles-Simpson plan).

– Cutting $8.5 billion in non-defense discretionary spending (compared to $100 billion in the Bowles-Simpson plan).

– Cutting farm subsidies by $7.5 billion (compared to $3 billion in the Bowles-Simpson plan).

– Implementing health care reforms saving $17 billion (including a public option).

– Raising corporate taxes by about $132 billion.

– Raising $92.6 billion in personal taxes by equalizing the treatment of investment income and regular income and implementing Sen. Bernie Sanders’ (I-VT) progressive estate tax.

– Raising $52 billion by implementing a cap and trade system.

This is a serious proposal, and should be given as much consideration as the Bowles-Simpson proposal and the proposal reportedly dropping tomorrow from Alice Rivlin, another commission member. Contrary to the Bowles-Simpson approach (and that advocated by most Republican members of Congress), Schakowsky has shown that it is feasible to balance the budget without blowing a huge hole in discretionary spending and she does it while also taking into account the threat of climate change (and the revenue that cap-and-trade can generate).

She also refuses to forego economic growth for austerity in the short-term, dedicating $200 billion over the next two years to job creation and bolstering the social safety net, while still hitting the commission’s deficit reduction target in 2015.

Of course, there is no way that Republicans on the debt commission will embrace this proposal, as they’ve already explicitly ruled any tax increase “off the table.” (Which Schakowsky herself predicted they would back in June.) But she’s shown that there is a way to balance the budget while simultaneously protecting the middle class and making important investments, and she should be commended.

At the moment, the top two candidates to chair the House Financial Services Committee next year — Reps. Spencer Bachus (R-AL) and Ed Royce (R-CA) — are going back and forth, one-upping each other on who would be most aggressive in rolling back the financial reforms enacted by the Dodd-Frank law. Bachus has announced his intention to deny the new Consumer Financial Protection Bureau funding, roll back the Volcker rule, and remove the government’s new powers to dismantle failing financial firms without using taxpayer dollars.

Today, Royce appeared on CNBC to lay out which sections of Dodd-Frank he wants to “revisit,” and first on the list is the newly-created Consumer Financial Protection Bureau. Royce explained that he wants to revive an amendment he proposed during the financial reform debate that would have allowed bank regulators to veto the Bureau’s rules:

One of the ones that I think is most important that we revisit — and of course, the Democrats had the votes to prevent this — but the prudential regulators, the regulators for safety and soundness warned us, ‘do not set up a Consumer Financial Protection Bureau which is able to trump safety and soundness.’ The safety and soundness regulator needs to have a say, needs to have final say in this. My amendment during the markup on the Dodd-Frank bill would have given the prudential regulator that say in the process, so that we didn’t repeat some of the mistakes that we made with Fannie Mae and Freddie Mac. We have to revisit that issue.

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There were clearly rampant consumer protection violations that occurred in the subprime lending market, and the bank regulators were completely disinterested in policing such lending, even when they had the authority to do so. Royce would put those same regulators right back in charge, handcuffing the one agency whose explicit mission is protecting consumers from the banking industry’s excess.

The CFPB is already subject to veto by the bank regulators. A two-thirds vote of the Financial Stability Oversight Council — a nine member board composed of the heads of the bank regulators, the Treasury Secretary, and an “insurance expert” — can nullify any CFPB regulation. Royce is clearly trying to set the bar even higher, giving individual regulators the ability to blunt any rule they don’t like.

In the end, both Royce and Bachus have made it abundantly clear that the next chairman of the Financial Services Committee is going to be interested, first and foremost, in protecting the ability of banks to do whatever they want, regardless of the effect on consumers.

Earlier this month, the Federal Reserve launched a round of quantitative easing — known as QE2 — in an attempt to entice consumers and businesses into spending and spurring economic growth. With interest rates already at the zero bound, and the prospects of further fiscal stimulus coming from the Congress virtually non-existent, QE2 is essentially the last policy option that the federal government has to try to increase the currently sluggish rate of job growth.

Republicans in Congress — after refusing to support of American Recovery and Reinvestment Act or any of the myriad job creation bills brought before Congress in the last few months — have criticized the Fed’s move, with spokesman for both incoming House Budget Committee Chairman Paul Ryan (R-WI) and incoming Speaker of the House John Boehner (R-OH) telling Politico that the Fed’s plan is uncalled for.

Rep. Mike Pence (R-IN) is so displeased, in fact, that he plans to introduce legislation today that would entirely remove the Fed’s mandate to ensure full employment:

Rep. Mike Pence of Indiana, a top House Republican, said he plans to introduce legislation Tuesday to end the Federal Reserve’s dual mandate, which requires the central bank to balance both employment and inflation concerns in its monetary policy…“The Fed’s dual mandate policy has failed,” Pence said in a statement. “For a record 18th straight month the nation’s unemployment rate is at or above 9.4 percent. It’s time for the Fed to be solely focused on price stability and not the recently announced QE2 which will monetize our debt and trigger inflation.”

Pence is joined in his push by Sen. Bob Corker (R-TN), who released a statement today saying, “It is time that we work to clarify the mandate of the Federal Reserve. Providing our central bank with a clear and explicit focus on keeping inflation low will serve America better than the broader mandate approach we have today.”

This crystallizes quite well the Republicans’ set of priorities — as they’re pushing to extend tax cuts for the wealthiest Americans, they’re criticizing the last step available for alleviating wider economic suffering. As economist Mark Thoma summed up, “Republicans oppose fiscal policy — including things such as extending unemployment compensation and job creation initiatives to help to overcome severe conditions (though tax cuts for the wealthy are okay) — and they oppose monetary policy that tries to lower the unemployment rate. So, in essence, they oppose doing anything to help the unemployed during a recession.”

At the same time, the GOP’s concern about inflation is quite overblown, as there is no sign of inflation at the moment. As New York Federal Reserve President Bob Dudley said yesterday, “People do not understand clearly” that “we can have an enlarged balance sheet and not have a long-term inflation problem.”