Today, the Obama administration is rolling out its plan for reforming financial regulation, and a key facet of the plan is the creation of a consumer protection agency (which will be officially named the Consumer Financial Protection Agency). The agency will be charged with overseeing how financial products like mortgages and credit cards are marketed to consumers.

Yesterday, the banking lobby voiced its displeasure with the idea of a new agency, and advocated simply relying on the same regulators that let the house burn down in the first place. And according to National Journal, the bankers have found an ally in the Chamber of Commerce:

Firing a warning shot ahead of the Obama administration’s proposal for overhauling the nation’s financial regulatory system, the U.S. Chamber of Commerce today warned it will vigorously oppose creation of a stand-alone consumer safety commission for financial products. Creating such a regulatory authority “is not a silver bullet for enhanced consumer protection,” said David Hirschmann, president of the Chamber’s Center for Capital Markets Competitiveness. “In fact, it may be a lead balloon.”

Last week, the Chamber rolled out a $100 million campaign to “defend and advance economic freedom.” The Chamber’s press office wouldn’t talk to me because it’s “not entertaining calls from bloggers at this time,” but I’d sure like to know if any of that $100 million is going towards lobbying against this new agency.

Anyway, if it’s designed correctly, a consumer protection agency could be a very good thing. Part of the leadup to this crisis was no one adequately policing mortgages on the ground level. Thus, lots of lousy loans were handed out and then sold to Wall Street, which securitized them and came back for more, fueling more bad lending.

As Matt Yglesias points out, it’s unclear how much of this was fraudulent lending, but in light of stories like that involving Wells Fargo — which is accused of intentionally steering minorities who qualified for prime loans into subprime — I’m sure the agency will have some things to look at. It’s also encouraging that the agency’s rules “wouldn’t pre-empt state laws, which mean states could push for tougher policies banning certain lending practices.”

That said, the agency will only be effective if it’s on par with the banking regulators and can keep up with financial innovation. It can’t be second tier, without enough resources or stature to do its job effectively. The administration’s plan calls for “stable, robust funding,” and giving the agency “sole rule making authority” in terms of consumer protection. We’ll see if Congress decides to grant those requests.

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.

In today’s Washington Post, Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers laid out the principles guiding the Obama administration’s plan for reforming financial regulation, which is supposed to be rolled out in full this week. “The goal,” Geithner and Summers wrote, “is to create a more stable regulatory regime that is flexible and effective; that is able to secure the benefits of financial innovation while guarding the system against its own excess. ”

There has already been plenty of reaction to the piece, but I’ll turn it over to Simon Johnson, who takes on Geithner and Summers’ claim that “a few large institutions can put the entire system at risk,” so we need a systemic regulator:

You need to control the behavior of large institutions, more than a few of which got us into this mess. If you can’t come up with a proposal to prevent them from taking system-damaging risk (and there is nothing in today’s article about this), then break them up. The article mentions penalties for being large — higher capital and liquidity requirements for larger banks; we’ll see the details in/after Geithner’s speech tomorrow, but I am not holding my breath for anything meaningful.

Back in April, Nobel prize-winning economists Joseph Stiglitz and Robert Solow said that the “most disappointing” aspect of the administration’s regulation plan was that it didn’t fundamentally reorganize the way in which large financial firms operate, and I think that concern is still valid. It really depends on how stringent the capital and liquidity requirements end up being, but by counting too much on a systemic risk regulator and a new resolution authority (for taking apart large firms that go bust), the administration may not be doing enough to directly stop firms from becoming so large and interconnected that they threaten the system.

This is especially important since the plan seems to be leaning toward a “council” of regulators, loosely overseen by the Fed, that will monitor systemic risk. As Felix Salmon put it, “we need a powerful single regulator with teeth, not a council of bickering sub-regulators.” Indeed, we’ve already seen spats between the various agencies and their regulators, which, if they continue, will work to the advantage of the banks playing regulators off against each other.

I know it means stepping on the toes of some congressional committees and regulators themselves, but if the administration is serious about getting systemic risk under control, it needs to have both strict rules governing Wall Street and an enforcer that has enough power to ensure that the rules are followed. Hopefully, both of those will come to pass as the administration makes the extent of its plans clear.

Yesterday, USA Today laid out the current depressing rise in the price of oil:

Pump prices are following the rise in crude oil, which set an 8-month high Thursday on a falling dollar and brighter economic outlook. Gas prices are not expected to approach last summer’s wallet-busting $4 per gallon, but they could eat into consumer spending just as the recession is showing signs of easing. The nationwide price for a gallon of regular gasoline averaged $2.63 Thursday, up 58 cents since the end of April and $1.01 since pump prices bottomed at about $1.62 at the end of last year.

The real problem here is that “eat into consumer spending” bit, as rising gas prices threaten to stymie some of the spending that the stimulus bill sought to promote. Fatih Birol, chief economist at the International Energy Agency, told the Wall Street Journal just how much oil prices are threatening spending worldwide:

Assessing the relief from last year’s record $100 average U.S. oil price, Mr. Birol estimates that an average $40 a barrel oil price in 2009 — below what most analysts expect — would pad consumer wallets in industrialized nations like the U.S. to the tune of almost $600 billion. But an average price of $70 a barrel, roughly the current price level, cuts the stimulus effect down to just $290 billion.

Robert J. Shiller, an economist at Yale, figured that the price hikes “could effectively offset the new $400 to $800 payroll tax cut most employees are receiving this year” due to the Obama administration’s stimulus package.

As Ryan Avent put it, “I don’t really know how else to say this, but oil prices are about to kill our chances at recovery dead. That’s all there is to it.” As possible solutions to use in the limited time before higher prices hit, he advocated trying to talk OPEC into more production, opening up the Strategic Petroleum Reserve, and providing “immediate funding to transit systems nationwide to increase service.”

In the grander scheme of things, it’s really absurd that the U.S. allows rising oil prices to wallop U.S. consumers every single summer. And via Matt Yglesias, we have Bradford Plumer suggesting that the U.S. “implement some sort of variable oil tax that would keep the domestic price of oil more or less stable: When world oil prices rise, the tax decreases; when oil prices plunge, the tax increases.” “That would help create a predictable price signal to encourage conservation and alternatives to oil, and raise revenue for energy projects (not to mention send fewer dollars overseas),” wrote Plumer.

This week, the Chamber of Commerce announced a $100 million campaign “to defend and advance economic freedom.” Chamber President Tom Donohue proclaimed the campaign “one of the most important and necessary initiatives in our nearly 100-year history.”

Never missing an opportunity to promote the interests of the business lobby, CNBC dedicated its “Most Underplayed News Story” segment last night to the Chamber’s campaign, with host Dennis Kneale proclaiming “it’s about time business started fighting back.” Not surprisingly, all of Kneale’s guests agreed. Watch it:

First, the claim that this story was “underplayed” is spurious at best. Politico essentially repackaged the Chamber’s press release announcing the campaign into an article, and both the Wall Street Journal and BusinessWeek covered the campaign’s launch. In fact, C-Span thought the campaign was important enough to merit asking Vice President Biden’s economic adviser Jared Bernstein about it on Washington Journal yesterday.

But more importantly, this notion that the business lobby hasn’t been fighting the Obama administraion’s agenda until now — thus making the Chamber’s campaign vitally necessary — is absolutely ludicrous. Consider:

– The Chamber partnered with the National Foreign Trade Counci, Business Roundtable, and the National Association of Manufacturers, and threatened to “spend whatever it takes” to defeat President Obama’s corporate tax reforms.

– The Chamber, in conjunction with other business interests, “said they will spend about $200 million on advertising and lobbying” against the Employee Free Choice Act.

– During the stimulus debate, the Chamber released a plan that centered on corporate and capital gains tax cuts.

And none of this takes into account the vast influence that the banking industry has had over the legislative debate so far this year. The Chamber is merely throwing another $100 million into an already intense effort to bog down the administration’s health care, climate change, and tax reform agendas.

Earlier this year, Duke Energy left the National Association of Manufacturers “because of disagreements with the lobbying group’s stance on climate change policy.” So far, no one has rebuked the Chamber, but are companies like Nike, IBM, and UPS (which all have spots on the Chamber’s board of directors) okay with this campaign of obstructionism?

Today, the Workforce Protections Subcommittee of the House Education and Labor Committee held a hearing on the Healthy Families Act (HFA), a bill introduced by Rep. Rosa DeLauro (D-CT) that would guarantee all Americans seven days of paid sick leave. Preempting the hearing, the National Association of Manufacturers (NAM) launched a broadside, claiming that the legislation will surely cause America to lose jobs:

The National Association of Manufacturers (NAM) – the nation’s largest industrial trade association representing manufacturers of all sizes and industries – opposes “one-size-fits-all” mandates on employers that increase the cost of doing business in the United States…The HFA legislation would impose an inflexible government mandate on employers, making it more difficult for manufacturers to preserve and create jobs in these difficult economic times.

This sounds exactly like the claims made by the National Small Business Association (NSBA), which said that the HFA “would hinder an entrepreneur’s ability to create jobs.” “Small businesses are in need of a helping hand in creating jobs and increasing productivity — not burdensome government mandates that impose additional costs, stifle job growth and harm employees,” claimed the NSBA. Sen. Mike Enzi (R-WY) also picked up on it, saying that “every time Washington pushes an unfunded mandate onto the backs of small businesses, operating costs increase and hinder the economy’s ability to grow [and] create jobs.”

Sounds pretty terrible, doesn’t it? Except, according to a report out today from the Center for Economic and Policy Research (CEPR), none of it is true. CEPR actually found that paid sick leave has almost no effect on a country’s employment situation:

The experience of the 22 countries with the highest level of social and economic development (as measured by the Human Development Index) suggests that there is no significant relationship between national unemployment rates and legally-mandated access to paid sick days and leave.

Considering that today, the World Health Organization officially labeled swine flu a pandemic, because it’s “now undergoing communitywide transmission in Australia as well as in North America,” this issue becomes even more important. I pointed out when swine flu first broke that the Center for Disease Control was recommending that sick workers stay home, and yet nearly 50 percent of private sector workers and 76 percent of low-income workers have no paid sick leave.

The U.S. is all alone in the developed world in not mandating paid sick leave, even though sick workers attending work and infecting other employees costs the U.S. economy $180 billion annually. You’d think organizations like NAM and NSBA would want to prevent that sort of unnecessary economic loss.

Yesterday, the Obama administration released its plans for reforming America’s corporate pay structure, including standards for the seven companies that have received the most federal aid and proposals aimed at giving shareholders more say in their company’s pay packages. Of course, this sent Fox off the deep end, and prompted a segment today — complete with Karl Rove — about how the government “will come in and set pay scales” for all kinds of companies. Watch it:

Fox is conflating the two decidedly separate tenets of the Obama plan. The first, which does involve direct government oversight of compensation, only applies to the five most senior executives and 20 most highly paid employees at seven companies that have received billions in government bailout money.

The companies — “American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers” — will have their compensation practices overseen by Washington lawyer Kenneth Feinberg. But I stress, this only applies to companies that are essentially owned by the United States government, and there’s no reason that the government shouldn’t act as a majority owner would. And the Obama administration has already explicitly said that it won’t directly cap salaries, even at these companies.

The other part of the plan, which is called “say on pay,” involves no direct government intervention. The plan would simply ensure that shareholders — the owners of a company — are able to hold a non-binding vote on that company’s pay packages. An odd dynamic has developed in American corporate governance, in which the shareholders don’t have a say over pay practices. This proposal seeks to address that, and far from being an overly intrusive, it may be too weak. James Kwak observed:

If you’re wondering how a non-binding shareholder vote could possibly solve the problems with executive compensation, you’re not alone. I think “say on pay” is slightly better than nothing, because there is a chance that in some cases the additional attention will shame boards into more reasonable packages. But in general, shareholders’ ability to influence corporate governance is pretty weak.

“We’re not telling clients to be prepared for less pay,” David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates, told Bloomberg News. So as much as Fox would like to turn this into another part of Obama’s nefarious plot to implement socialism, that just isn’t the case.

Yesterday, the Treasury Department announced that it’s allowing ten banks to repay $68 billion in TARP money. McClatchy added today that the federal government actually saw a profit on this $68 billion, albeit a small one:

In addition to returning the $68 billion, the 10 banks paid the government $1.8 billion in dividends on the preferred shares of stock the government owned. That translates to an annualized rate of return of about 4.64 percent on the $68 billion. In all, the government has received $4.5 billion from all bailout recipients, who’ve received $200 billion, for an annualized rate of return since Nov. 12, 2008, when the money was lent out, of 3.94 percent.

As Matthew Yglesias pointed out, this seems to show that “for all the complaining from both the right and the populist left about spending $700 billion on bailouts, the net fiscal cost of the $700 billion TARP program is likely to be dramatically lower.” However, CNBC’s crack economic team isn’t buying it, and spent a segment today discussing how the Treasury is clearly going to put the repaid TARP funds into a government slush fund to bail out “the Boston Globe” and “the guys that make Chia pets,” and thus taxpayers will never see the money again. Watch it:

CNBC contributor Steve Leisman provided a nice moment of sanity during the segment, reminding his co-contributor Stephen Moore that “you were the one arguing that the taxpayers would never see a dime from this, the banks would never pay it back, and now you want us to believe your next new warning?”

There are real questions about where the money repaid from TARP should go, and one of the options is having Treasury hold onto it in case of another economic free fall. This is what Herb Allison, who the Obama administration has tapped to run the program, thinks we should do. Other options include paying down debt or using the funds to aid smaller, community banks.

There is also some ambiguity about Treasury’s plan for winding down its interest in institutions like Citigroup and GMAC, from which there will likely be no repayment anytime soon. But CNBC couldn’t be bothered with a serious discussion, and decided that it would be more entertaining to laugh about the federal government buying Chia pets.

Douglas Holtz-Eakin, the former policy director for Senator John McCain’s presidential campaign, recently told Congressional Quarterly that conservatives needed a “‘Center for American Progress’ for the right.” His most recent research doesn’t bode well for his think-tank ambitions.

Holtz-Eakin has published a paper claiming that eliminating the estate tax would create 1.5 million jobs. He concluded:

“Eliminating the estate tax would raise the probability of hiring by 8.6 percent, increase payrolls by 2.6 percent and expand investment by 3 percent…If small business payrolls were to rise by as much as 2.6 percent strictly through additional hiring, this translates to roughly 1.5 million additional small business jobs.“

This conclusion is very, very unlikely, relies on sensitive assumptions, leaps of logic, and dubious calculations. Here’s where the study goes wrong:

It severely overestimates the incidence of the estate tax on small businesses: Holtz-Eakin asserts that eliminating the estate tax would raise the wealth reported on estates by over $1.6 trillion. He describes this as an “increase in small business capital,” despite the fact that only 1.3 percent of the .24 percent of all estates who pay estate taxes are small businesses. In 2009, according to the Center on Budget and Policy priorities, only 80 (yes, eight-zero) businesses or farms nationwide will owe any estate tax at all. The average rate the heirs to these estates will pay will be 14% of their multi-million dollar inheritances. Read more

Today, the Chamber of Commerce launched a $100 million campaign to “defend the free-market system,” with an accompanying piece in Politico that, as Josh Marshall noted, reads like a Chamber press release. Chamber President Tom Donohue said that the campaign, “which he’s dubbed the Campaign for Free Enterprise, could become the most important project the Chamber has embraced in its nearly 100-year history”:

Donohue will begin raising money for the project this summer and roll it out in stages. As envisioned, the campaign will include a grass-roots lobbying component that will tap the strength of the Chamber’s network of small businesses and business and trade associations. A public education ad buy defending the free enterprise system is in the works, as well as an issue advocacy program tied to the 2010 midterm elections. “We’re going to hold politicians accountable as we defend and advance economic freedom,” Donohue said.

Of course, by “defend and advance economic freedom,” Donohue really means that the Chamber will be spending $100 million to try to maintain the pro-corporate status quo in a host of areas. The Chamber plans to try and get its stamp on just about every piece of legislation that’s coming down the pike, including, but not limited to: Cap-and-trade, health care reform, regulatory reform, and corporate tax reform.

Despite the economy’s collapse, and the common sense economic reasons for addressing health care and climate change, the Chamber has decided that these ideas somehow threaten freedom as we know it. Maybe it, like the Heritage Foundation, wants to import the “economic freedom” of dictatorial East Asian city states.

The Chamber has, in the past, engaged in some over-the-top rhetoric to present its point of view. For instance, it called the Employee Free Choice Act a “firestorm bordering on Armageddon,” while claiming that regulating pollution would “strangle the economy.” But calling this project of obstruction and corporatism “the most important” it’s ever done may take the cake, and it certainly shows where the Chamber’s priorities truly lie.

Today, the Congressional Oversight Panel (COP) for the TARP, chaired by Prof. Elizabeth Warren, released a report examining the efficacy of the stress tests that were performed on the nation’s largest banks. One of the panel’s recommendations was that Treasury start working on Stress Test: The Sequel. “We actually make recommendations to do it all over again right now,” Warren told CNBC, citing worsening economic conditions.

It seems a bit too early to tell whether or not the “adverse” economic scenario laid out in the tests was overly optimistic (even though eventually coming to that conclusion is entirely possible), so I don’t know how much there is to learn from another test right now. But I do think it’s worth endorsing COP member Richard Neiman’s proposal to make some form of stress test a “semi-regular” feature of bank regulation:

“I would certainly support that they utilize this on an ad hoc basis, that we encourage institutions to do these tests and report them to the regulators,” Neiman told the Huffington Post. “And we recommend that the Treasury continue to track the economic indicators to make sure they are tracking the assumptions used under the plan, and to the extent that they exceed those assumptions, that we repeat those tests.” While acknowledging that there would be a “resource issue,” Neiman said that continuing the stress tests is like taking your car in for a check-up, even when it seems everything seems to be running okay.

This is particularly important given that the Treasury Department gave 10 banks the go-ahead today to repay $68 billion in TARP funds. This occurred despite data showing that the “pace of prime borrowers going into foreclosure is accelerating,” and “the default rate on commercial mortgages held by U.S. banks may rise to the highest in 17 years,” both of which could spell trouble for bank balance sheets down the road.

It also ties into concerns that the plan for removing the banks’ toxic assets is dead in the water, due to a lack of interest from the banks. Treasury told The American Prospect’s Tim Fernholz that this isn’t the case, but it’s unclear how Treasury plans to get the ball moving when the banks seem perfectly content to just wait out the recession.

But the assets are still sitting there, and some analysts have concluded that “accounting rule changes and rosy assumptions are making [the banks] look healthier than they are.” In light of all this, giving the banking system a periodic checkup that is transparent and easy to understand seems to make complete sense, provided that the tests are designed to actually put the banks through a bit of stress.

Today, the House plans to vote on a bill crafted by Rep. Betty Sutton (D-OH) — and supported by Sen. Debbie Stabenow (D-MI) — that would initiate a “cash for clunkers” plan. Under the plan, “consumers could receive rebates of up to $4,500 for turning in their gas-guzzling cars and trucks for more fuel-efficient vehicles.”

Sen. Dianne Feinstein (D-CA) has put together her own version of cash for clunkers, and of the two, Feinstein’s is far stronger. Thus, Elana Schor at Streetsblog expresses proper concern that “if Sutton’s plan wins House approval this week, Stabenow’s Senate counterpart could potentially get a leg up over Feinstein’s”:

Feinstein’s proposal would require drivers to achieve a 25 percent fuel-efficiency increase before receiving a tax credit for ditching their clunkers. But Michigan Sen. Debbie Stabenow (D) is pushing for a trade-in tax credit that’s very similar to Sutton’s — truck owners would only have to increase their fuel efficiency by 2 miles per gallon to be eligible. The requirements for car trade-ins aren’t much better under the Stabenow and Sutton plans, with a mere 4 mpg increase in fuel economy triggering the $3,500 tax credit.

In light of the new CAFE standards announced by President Obama — which stipulate that cars and light trucks will have an average mile requirement of 35.5 miles per gallon by 2016 — why would we want to incentivize the extremely modest fuel efficiency improvements in Sutton’s bill? For instance, a “2009 Hummer H3T, which gets 14 mpg in city driving and 18 mpg on the highway, could qualify for the incentives” under Sutton’s plan. That’s not really doing anyone a favor, except for the firm that built the Hummer.

Ultimately, cash for clunkers is not the most effective way to upgrade to a more fuel efficient fleet. The vouchers for new vehicles seem to apply only to upgrades within the same type of vehicle (so truck owners get new trucks, car owners get new cars, etc.) which doesn’t encourage a transition away from trucks, even though a truck with good fuel efficiency is way less efficient than a fuel efficient car. The program is essentially economic stimulus for the auto industry, and could turn into a huge handout if the standards aren’t high.

That said, a properly designed program could have some valuable effects in terms of stimulus and combating traditional pollution. And if that is indeed the goal, Sutton’s bill doesn’t seem like the best way to get the ball rolling.

A favorite conservative trope is to blame the housing crisis (or even the entire economic meltdown) on lending in low-income, typically minority, neighborhoods, done under the auspices of the Community Reinvestment Act (CRA). “I don’t remember a blaring call that said, Frannie and Freddie are a disaster, loaning to minorities and risky folks is a disaster,” Fox News’ Neil Cavuto put it.

As CAP’s Tim Westrich noted, the reality is that “CRA-covered institutions succeed at bringing conventional, prime loans to lower-income communities, while non-covered institutions are the ones that drove bad practices.” And according to some of its former loan officers, bailed-out bank Wells Fargo was, for a decade, “systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages”:

These loans, Baltimore officials have claimed in a federal lawsuit against Wells Fargo, tipped hundreds of homeowners into foreclosure and cost the city tens of millions of dollars in taxes and city services. Wells Fargo, [former loan officer] Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages. Another loan officer stated in an affidavit filed last week that employees had referred to blacks as “mud people” and to subprime lending as “ghetto loans.”

As Nick Baumann at the Mojo Blog put it, “if this is true, there’s a word for it: evil.” The nasty racism is bad enough, but the fact that these aspiring homeowners were actively steered toward subprime loans when they qualified for a prime loan makes it all even worse.

After all, as the New York Times noted, “for a homeowner taking out a $165,000 mortgage, a difference of three percentage points in the loan rate — a typical spread between conventional and subprime loans — adds more than $100,000 in interest payments.” As Judd Legum pointed out, “many of the individuals who were pushed into these loans may have been able to avoid foreclosure if they were offered the prime loans for which they were qualified.”

This is all part and parcel of the ugly growth of subprime lending — driven by non-CRA covered institutions and encouraged by Wall Street banks ready to buy and securitize anything. That — and not lending in low-income neighborhoods — was really the culprit behind the housing implosion.

Last week, it was widely reported that the Obama administration will unveil its plan for reforming financial regulation during the week of June 17. One of the really common sense proposals that’s been mentioned is merging the Securities and Exchange Commission (SEC) with the Commodity Futures Trading Commission (CFTC).

The two agencies have begun stepping on each other’s toes in recent years, as more and more companies started using derivatives — financial instruments used to mitigate economic risks. Once confined to the agricultural world (and thus regulated by the CFTC), they now fuel business for banks (regulated by the SEC) to the tune of hundreds of trillions of dollars. (See chart after the jump.)

SEC member Elisse Walter said that the two agencies have become “increasingly indistinguishable,” while SEC Chairman Mary Schapiro said that she believes “logic and efficiency” can be achieved with a merger. And yet, the Obama administration is reportedly scuttling a merger plan.

Why? Because congressional members of the agriculture committees (which have jurisdiction over the CFTC) don’t want to lose out on the money that they receive from banking interests. CNN Money reports:

Most veteran congressional watchers say a merger would give the banking committees more power, while the agricultural committees would lose power. The agricultural panels don’t like that idea much…In addition, lawmakers who lose jurisdiction over the CFTC could lose lucrative campaign contributions from banks and investment firms.

“Lucrative” is indeed the word to use, considering that “during the 2008 election cycle, House agricultural committee members collected $8.6 million and Senate agricultural committee members collected $28.4 million from the financial services sector.”

CFTC Chairman Gary Gensler has also come out against a merger, even though the CFTC, by its own admission, was created to deal with trading in the agricultural sector. It makes very little sense for the CFTC to be regulating the instruments wielded by Wall Street behemoths. Effectively reforming financial regulation is going to be a difficult nut to crack as it is, and this kind of inter-committee and inter-agency sparring seems to play to the advantage of the industries that are looking to blunt the regulatory push.

Read more

Late last year, conservatives advocated pushing GM into a Chapter 11 bankruptcy proceeding. Echoing the conservative line last December, Sen. Jim DeMint (R-SC) told the Fox Business Network:

“We don’t think it is the role of government to intervene…We need to let the market and the laws work the way they are already in place.”

But doing it then, without a pre-packaged agreement amongst creditors, suppliers, workers and management, alongside protections for consumers, could have been disastrous.

As Susan Helper, an economics professor at Case Western Reserve University, told the Huffington Post, “I thought filing for bankruptcy in December would be a disaster…It would have focused people on fighting over who was going to get paid, rather than making the companies work better.”

Merely plunging into bankruptcy proceedings without a prepackaged plan would have left suppliers and manufacturers of intermediate goods (who provide parts and materials for every car company with factories in the Unites States — including Toyota and Honda) struggling to secure credit, forcing cascading layoffs and stalled production that would have caused slowdowns throughout the industry. Combined with customers who would steer clear of Detroit brands because of uncertainty surrounding maintenance warranties, a messy bankruptcy could have have kicked off a vicious downward spiral that could have ended in liquidation and enormous job losses.

A study from the Center for Automotive Research suggests that an unsuccessful bankruptcy of GM and Chrysler would have cost approximately 1.3 million jobs. “Instead,” reports the New Republic, “the likely hit from the twin restructurings is 250,000.”

A GM in bankruptcy last November, in the midst of a nearly frozen credit-market, would have found it nearly impossible to find creditors to finance them through a Chapter 11, so without government assistance, they probably would have had to undergo a rapid and jarring liquidation under Chapter 7. This would have meant mass layoffs, a sell-off of assets at bargain basement prices, dismantling of factories, and hundreds of thousands more Americans straining states’ fraying unemployment safety nets, and a denial of millions of dollars in revenue to starved state budgets. Read more

Back during the stimulus debate, I had an item about how it’d be a good idea to let cities put their stimulus money toward operating costs for transit systems. Well, it didn’t happen. Currently, “areas with populations of more than 200,000 are prohibited from using their federal transit funding for operating costs,” and are forced to put the money toward new capital projects.

Today, Rep. Peter DeFazio (D-OR) and 26 other House members urged Congress to seize an opportunity to change the policy:

Passenger rail and bus advocates are pressing conferees on the war supplemental bill to include a Senate-passed provision that would allow public transit agencies to spend some of their stimulus dollars on operating expenses, instead of capital improvements. The language in the Senate version of the bill (HR 2346) would let transit agencies use as much as 10 percent of their funding from the economic recovery law (PL 111-5) to fend off personnel and service cuts. Transit received $8.4 billion total in the stimulus.

As Congressional Quarterly reported, “many transit agencies are facing budget deficits that leave them unable to keep up with dramatic increases in ridership. As a result, service and personnel cuts are being proposed in cities across the country.” The Washington Metropolitan Area Transit Authority, for example, is getting ready to lay off 292 employees.

Since one of the goals of the stimulus was to preserve jobs, it makes little sense to prevent cities from saving the jobs of transit employees, particularly as more and more people are turning towards public transportation. Hopefully, Congress makes a better decision this time around.

During the (ultimately failed) effort to pass cram-down legislation through the Senate in April, Republicans were pressuring bailed-out banks to not compromise on the bill. Today, in a disturbingly thorough rehashing of just how much power the banks wielded during that debate, the New York Times provides the identity of one of these senators:

Senator Jon Kyl, the Arizona Republican leading the charge against the bankruptcy change, told bankers there would be consequences if they dealt with the Democrats. According to an April 20 e-mail message between industry officials in touch with Mr. Kyl, he told them “not to make a deal with Durbin and then come looking to Republicans when they need help on something like regulatory restructuring.”

In an interview, Mr. Kyl, the Senate’s No. 2 Republican, did not recall whether he had made the statement, although he remembered telling bankers that he could not defend them if they did not first defend themselves. “I very pointedly said, ‘Don’t make a deal with Durbin on this. You don’t need to. If he has the votes he wouldn’t be dealing,’ ” Mr. Kyl recalled.

As I noted at the time, Kyl was taking a stand against cram-down — a bill aimed at helping troubled homeowners — just as Arizona’s foreclosure rate was spiking. This New York Times report shows that not only was Kyl pushing the banks on cram-down, but he was doubling down and promising to support them on regulatory reform, which is one of the next issues that the Obama administration plans to tackle, much to the banks’ chagrin.

Kyl followed up his performance on cram-down by being one of just five senators to vote against the Credit Cardholders’ Bill of Rights, another bill of which the banks weren’t very fond. In the last five years, Kyl has received more than $1 million from the banking industry and securities firms.

Rep. Colin Peterson (D-MN) said this week, “I will tell you what the problem is — [the banks] give three times more money than the next biggest group. It’s huge the amount of money they put into politics.” And in the first three months of this year, just four of the banking industry’s top trade groups spent nearly as much on lobbying “as they did in all of 2001.”