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That is the recent refrain of Senate Banking Committee Republicans when asked about the financial services regulatory reform bill now pending in the Senate.

While Republicans have expressed continued willingness to work with committee Democrats to develop bipartisan legislation that would address the root causes of the recent financial crisis, they appear in no hurry to pass a bill—and certainly not what they consider a “bad bill”—just for the sake of having a bill.

As a whole, Senate Banking Committee Republicans think the Dodd bill and the House-passed reform bill go too far. Chairman Chris Dodd (D-CT) seems well aware of that fact and, as reported previously, has constituted numerous working groups to hammer out the various issues. Those groups are currently working together to resolve outstanding issues, with varying degrees of progress.

While the committee has been expected to mark-up its version of the financial reform bill in February, that schedule will depend upon the level of progress and bipartisanship the committee is able to achieve. One major stumbling block has been the establishment of a new Consumer Financial Protection Agency (CFPA)—a signature issue of the Obama Administration. Chairman Dodd has reportedly expressed a willingness to move away from the CFPA in a favor of giving more consumer protection authority to existing prudential regulators—a position also favored by committee Republicans.

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This afternoon the House of Representatives took a significant step towards the enactment of comprehensive financial reform legislation, passing the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) by a vote of 223 to 202. Democrats would have preferred a larger margin of victory, but they can take some satisfaction from having now passed three of the Obama Administration's major priorities—climate change, health care, and financial reform.

Throughout the week, the Democratic leadership was forced to fend off several attempts by moderate Democrats to narrow the bill’s provisions, especially those relating to the Consumer Financial Protection Agency (CFPA). On Wednesday, word quickly spread around the Capitol that a federal preemption amendment backed by Rep. Melissa Bean and her allies in the New Democrat Coalition faced strong opposition from the White House and Treasury, who were seeking to bar it from consideration on the House floor. The Bean amendment would have broadened the CFPA’s ability to preempt state consumer protection laws. However, following direct negotiations between the New Dems and top Treasury officials, a modified version of Bean’s preemption amendment was ultimately wrapped into a manager’s amendment that passed on Thursday.

Another significant amendment, opposed by House leadership and the White House, was offered by Rep. Walt Minnick (D-ID). Minnick's amendment would have replaced the Consumer Financial Protection Agency (CFPA) with a Consumer Financial Protection Council (CFPC), comprised of 12 members, including, among others, the Secretary of Treasury, the Chairman of the Federal Reserve and the chairman of the CFTC and SEC. Although rejected by a vote of 208-223, Minnick was able to pick off 33 Democrats, potentially providing momentum for a CFPA alternative in the Senate where the Banking committee is still working on a bipartisan compromise.

The defeat of the "cramdown" amendment offered by Rep. John Conyers (D-MI) was a victory for the banking industry. Conyers' amendment would have enabled bankruptcy courts to modify mortgage repayment periods, reduce interest rates and fees, and lower the mortgage principal balance to the level of a home’s fair market value. Although the House passed similar language as part of the Helping Families Save Their Homes Act of 2009 (H.R. 1106) in March, the amendment was rejected today by a vote of 188-241.

Now that Financial Services Committee Chairman Barney Frank (D-MA) got his comprehensive reform package passed before the holidays, the pressure is on Senate Banking Committee Chairman Chris Dodd (D-CT) to produce results on his side of the Capitol.

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Treasury Secretary Timothy Geithner notified Congress today that the $700 billion Troubled Asset Relief Program (TARP) would be extended until October 3, 2010 – a move that, although expected, adds fuel to an ongoing debate on Capitol Hill whether to wind down the politically unpopular program or utilize its excess funds for broader economic recovery efforts.

In a letter sent to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner sought to quell political concerns by outlining a TARP “exit strategy” and narrowing the program’s focus to three specific areas in 2010: home foreclosure mitigation; small-business lending; and the Term Asset-Backed Securities Loan Facility (TALF) in order to facilitate lending through securitization markets.  According to Geithner, no TARP funds will be spent beyond these specific areas “unless necessary to respond to an immediate and substantial threat to the economy.”  In addition, the Capital Purchase Program – aimed at boosting bank lending through nearly $250 billion in direct capital injections – will cease.

Key to the administration’s TARP extension is the assumption that only $550 billion of the $700 billion program will be necessary for deployment, a figure buoyed by Treasury estimates that TARP-recipient banks could repay as much as $175 billion by the end of 2010.  Sanguine figures such as these have opened the floodgates to recent congressional proposals that would use TARP proceeds to create or expand economic recovery initiatives -- including a job-creation proposal outlined yesterday by President Obama – and, at the same time, remain budget-neutral.

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…But first, the House Rules Committee will meet this afternoon and Wednesday to consider nearly 250 amendments that have been filed to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), initiating a process that will set the parameters for a series of votes to occur during three days of floor consideration that could begin later this week.

Reflecting increasing pressure from Capitol Hill for the Obama administration to ramp up existing mortgage foreclosure prevention efforts, Rep. John Conyers (D-MI) and Zoe Lofgren (D-CA) have offered an amendment to H.R. 4173 that reincarnates a highly controversial provision—known as “cramdown”—which would allow bankruptcy judges to modify the terms of troubled mortgages.

Identical to the language passed by the House in March under the Helping Families Save Their Homes Act of 2009 (H.R. 1106), the Conyers-Lofgren amendment would authorize bankruptcy courts to modify mortgage repayment periods, interest rates and fees, and even the principal balance if a borrower provides evidence that efforts to complete a loan modification through the Obama administration’s “Making Homes Affordable” program have failed. Despite passage in the House, the cramdown legislation has twice been voted down in the Senate during separate votes in 2008 and 2009.

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The House Financial Services Committee yesterday completed work on the last pieces of its financial reform package, approving the systemic risk bill (H.R. 3996) and the Federal Insurance Office Act (H.R. 2609). Next Tuesday, December 8th, the House Rules Committee will reassemble into one large package all of the bills the Financial Services Committee considered separately. That package will include the two bills approved yesterday as well as legislation covering the Consumer Financial Protection Agency (H.R. 3795), over the counter derivatives (H.R. 3126), executive compensation and corporate governance (H.R. 3269), and mortgage reform and lending standards (H.R. 1728).

Financial Services Chairman Barney Frank (D-MA) is angling to have the omnibus reform package on the House floor on December 9th with at least three days of debate before the final vote. FR Watch is hearing from others on the committee that the date may slip to the following week. Frank said he anticipates the Rules Committee will approve ten additional, substantive amendments for consideration by the full House.

As the House is putting its package back together, the Senate Banking Committee is peeling apart the (Chairman Chris) Dodd draft so that bipartisan pairs of Senators can delve more deeply into assigned issue areas. Chairman Dodd (D-CT) and Ranking Member Shelby (R-AL) are focusing on the Consumer Financial Protection Agency. Senators Reed (D-RI) and Gregg (R-NH) are examining derivatives and credit rating provisions. Senators Schumer (D-NY) and Crapo (R-ID) are taking on corporate governance, investor liability, and executive compensation. Senators Warner (D-VA) and Corker (R-TN) are covering issues related to systemic risk.

The Senate Banking Committee has not yet scheduled any (financial reform-related) hearings beyond today’s nomination hearing for Fed Chairman Ben Bernanke, but it is safe to assume that the committee will be fixated on financial reform for the rest of December and probably well into the new year.
 

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On home improvement shows, it’s called the big “reveal.”  In Washington, the “reveal” is expected on Monday in the Senate Banking Committee with the much anticipated release of Chairman Chris Dodd’s (D-CT) omnibus financial reform bill. Rumors of its content have been leaking out for several days. Also being revealed --although it has been hinted at for weeks-- is the partisan divide that has opened up on Chairman Dodd's committee.

One of the most controversial elements expected to be in Dodd’s plan is the removal of bank supervisor authorities from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and the Office of Thrift Supervision in order to consolidate those authorities into one new super bank regulator. Neither the administration proposal nor House Financial Services Committee measures contemplated this approach. In fact, Financial Services Committee Chairman Barney Frank (D-MA) has criticized the concept because it does not “respect and preserve the dual banking system;” it undercuts the role of state bank supervisors; and it fails to preserve the role of the FDIC, an agency that Frank thinks is performing well.

Other expected provisions are a “Council of Regulators” approach to systemic risk; a Consumer Financial Protection Agency that will have oversight over most financial service products except for insurance or securities; credit rating agency reform; resolution authority for large financial institutions; and regulation of derivatives. Dodd plans to hold one or more hearings on his bill the week of November 16th and expects the committee to markup the bill after Thanksgiving.

Dodd has decided to move ahead without the support and assistance of Ranking Member Shelby (R-AL) and the other committee Republicans. Some are viewing this as a setback given that Dodd and Shelby had made a show in the past year of their shared views on some key parts of the financial reform agenda. Over the past six-to-eight weeks, as Dodd has pushed to pull the package together, it became clear the GOP side of the committee was reticent to come along. While this prevents the bipartisan approach Dodd had wanted, it does free him to take the bold approach it now appears we will see. Given the importance to his re-election of appearing to shake-up the financial establishment, Dodd may benefit from the freedom to stake out this turf. Whether that will contribute to the ultimate enactment of legislation remains to be seen.

Watch this space early in the week for a discussion of the outlook on the House side for continuation of the progress in assembling a comprehensive financial reform package.
 

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Gaining strong momentum after its passage out of the House Financial Services Committee last week, a bill crafted by Chairman Barney Frank (D-MA) to create a new Consumer Financial Protection Agency (CFPA) ran into a significant and unforeseen roadblock on Thursday – fellow Democrat and equally powerful House Energy and Commerce Chairman Henry Waxman (CA). In what could have been a routine markup of H.R. 3126, the Consumer Financial Protection Agency Act of 2009, the House Energy and Commerce Committee -- whose jurisdiction includes consumer protection and Federal Trade Commission oversight -- made dramatic changes to Frank's bill. One of the most obvious can be gathered from the amended bill's title: the Consumer Financial Protection Commission Act of 2009.

Waxman and the committee's Ranking Member Joe Barton (R-TX) collaborated on the manager’s amendment that would dramatically shift the agency’s governance from a single director to a commission led by a five-person bipartisan panel. Modeled after independent agencies like the Federal Communications Commission and the Federal Trade Commission, the chairman and commissioners would be nominated by the president, confirmed by the Senate, and serve staggered five year terms

Frank expressed sharp disapproval of the Waxman approach, referring to the commission model as “a big mistake” that will “weaken the capacity of the agency to provide consumer protection.” Frank defended the House Financial Services version as a balanced approach that allows a CFPA director to take prompt action, while at the same time, receiving the necessary recommendations and oversight from a board comprised of bank regulators and consumer groups. The differences may need to be resolved on the House floor. Waxman indicated he would have further changes during the floor debate, specifically removing some of the industry exemptions that were carved out by the House Financial Services legislation, including those for merchants, retailers and auto dealers.

The House Rules Committee will be the next stop for the bills where Chairman Louise Slaughter (D-NY) will execute the will of the House Democratic leadership and likely resolve the differences. It would not be in the best interest of the White House or congressional Democrats to have two of its most powerful chairmen battle over consumer protection on the House floor. The schedule is not yet posted, but the Rules Committee reconciliation could occur as early as next week.

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Heading into the House Financial Services Committee's markup of the CFPA bill last week, a handful of moderate, pro-business Democrats—including Reps. Melissa Bean (IL) and Jim Himes (CT)—banded together with the intention of significantly watering down bill language that scraps long-standing federal preemption laws related to consumer protection. However, merely a week later, and in the midst of suggestions from Democratic colleagues that a reinstitution of federal preemption laws would hamper the rulemaking ability of the states and ultimately poison the overarching bill, Bean and her allies were only able to muster a few drops as the committee approved legislation this morning by a vote of 39-29.

Instead, by voice vote, the committee agreed yesterday to an amendment to the Consumer Financial Protection Agency Act of 2009 (H.R. 3126) that allows the Office of the Comptroller of the Currency (OCC) or the Office of Thrift Supervision to intervene and preempt state laws on a limited basis, only in cases where state law discriminates against nationally chartered institutions or “significantly interferes with” national banks’ ability to engage in banking. Offered by Reps. Mel Watt (D-NC) and Dennis Moore (D-KS), the amendment still leaves in place bill language that severely limits the exemptions from state laws that nationally chartered thrifts, banks, and their operating subsidiaries have enjoyed since 2004. 

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Following last week’s unveiling of his newly-modified draft bill to create a Consumer Financial Protection Agency (CFPA), House Financial Services Chairman Barney Frank (D-MA) announced Wednesday his intention mark up the bill the week of October 12. While the philosophical debate between House Democrats and Republicans over the CFPA’s creation may be coming to a close, the debate amongst Democrats over the CFPA’s contours may be just beginning.

Federal preemption of state banking regulations is one of the first issues to divide Democrats. During Wednesday's committee hearing, Democratic lawmakers expressed concerns over a provision in Frank’s draft that would scrap federal preemption laws related to consumer protection. The Frank bill would have the CFPA set a minimum federal threshold and enable the states to set stricter rules if they choose. The potential exposure of nationally chartered banks to different consumer financial protection laws in every state is a prospect some fear would be overly cumbersome.

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Ample debate time in Washington can bring the good with the bad. As healthcare reform continues to dominate the congressional agenda leading into the fall, lawmakers have been granted an opportunity to finely tune the legislative details of financial reform—but also a window to resurrect previously rejected ideas from the dead.

This week, House Financial Services Committee (HFSC) Chairman Barney Frank (D-MA) announced his intention to include the so-called “cramdown” legislation into his chamber's broader financial reform package, injecting new life into a divisive proposal that would allow bankruptcy judges to modify mortgages by extending the term, reducing the interest rate, or writing down the principal amount.

During a HFSC subcommittee hearing yesterday to assess the progress of the Making Home Affordable (MHA) Program, Chairman Frank joined a chorus of lawmakers in expressing disappointment that the Obama administration’s loan modification program has not assisted more distressed homeowners. According to Treasury data, MHA has only modified the loans of 12 percent of eligible delinquent borrowers. Figures from some of the large banks are even lower, with Wells Fargo reporting 11 percent of eligible borrowers and Bank of America coming in at 7 percent. Despite the low percentages, the administration is citing statistics that the program has helped reduce the monthly payments of 350,000 homeowners since March.
 

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The House of Representatives took the first steps towards enacting President Obama’s sweeping financial reform proposal today, voting 237-185 to approve the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269) requiring all publicly-held companies to hold non-binding annual shareholder votes and expanding SEC authority over incentive-based compensation structures. Although the bill’s passage represents a major victory for the president and the Democratic Congress, it may prove to be the least controversial element of financial reform, as stark divisions remain on both sides of the aisle concerning the creation of a Consumer Financial Protection Agency and an expanded role for the Fed as a systemic risk regulator.

Unsurprisingly, this afternoon’s vote fell largely along party lines, with only two GOP members supporting the measure and 16 Democrats opposing. The House also approved, by a vote of 242-178, an amendment offered by Chairman Barney Frank (D-MA) that struck language prohibiting “clawbacks ” of executive compensation approved by shareholders. The amendment also inserted language that would prohibit clawbacks of incentive-based pay if a compensation agreement was in effect prior to this bill's enactment.

As the executive compensation legislation moves to the other side of the Capitol, conventional wisdom dictates that the Senate saucer will ultimately cool the House’s hot teacup – but this historical assumption may not apply for this bill.  The executive compensation debate was further inflamed yesterday following the release of New York Attorney General Andrew Cuomo's report showing that the nine largest U.S. banks paid out $32.6 billion in bonuses in 2008 -- a year in which total losses reached $81 billion and nearly $200 billion of taxpayer money was directly injected through the Troubled Asset Relief Program (TARP).  Moreover, a handful of lawmakers on the Senate Banking, Housing and Urban Affairs Committee currently facing tough re-election bids in 2010 – including Committee Chairman Christopher Dodd (D-CT) – will likely avoid putting themselves in a vulnerable political position by advocating reforms that deviate too much from the House legislation.

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Your Financial Reform Watch team has reported before on key legislators' misgivings with the administration's plan to make the Fed the systemic risk regulator for so-called "Tier 1" financial holding companies. Those misgivings are holding sway now on Capitol Hill and are beginning to take hold in the administration itself.

Just yesterday, SEC Chairman Mary Shapiro and FDIC Chairman Sheila Bair were the latest to endorse what Shapiro referred to as a “hybrid approach,” one that would significantly strengthen the president’s current proposal of creating a Financial Services Oversight Council, responsible for collecting data and identifying emerging financial market risks for the Fed. Instead, both Shapiro and Bair envision a council of regulators that would work in concert with the central bank. Additionally, Bair recommended that, in order to ensure independence, the chairman of the council should be a presidential appointee subject to Senate confirmation.

On the Senate side, Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) are both giving voice to concerns about the enhanced role for the Fed. Shelby has been an outspoken critic of giving the Fed such authority from the start, but Dodd’s statements at a committee hearing yesterday that the “new authority could compromise the independence of the Fed when it provides monetary policy,” and that he “expect[s] changes to be made to this proposal," made it clear the Senate is heading in a direction different from the administration's.

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The quick emergence of GM and Chrysler from bankruptcy has been viewed as a victory for the Obama Administration in demonstrating that the government is focused on moving the companies through their restructuring and keeping them on the road to once again being private companies. Now a majority of Members of the House, including two key Democratic leaders, are pushing legislation that could jeopardize the restructuring plans supported by the White House.

As we write this, a bipartisan group of 240 House Members and 20 Senators are supporting legislation that will allow auto dealers who have lost their franchises in the restructuring to recover them simply by requesting their reinstatement from the auto companies. The legislation was attached to the House version of the Financial Services Appropriations bill last week by a unanimous vote of 60 to 0. The legislation would require Chrysler and GM, at the request of an auto dealer, to restore the dealer franchise agreement in effect prior to each manufacturer’s bankruptcy proceeding. The bill could save around 2000 franchises according to some estimates, although that may be high, since many dealers have already closed. Some had feared the House Rules Committee would remove the language from the Financial Services Appropriations bill, but the language will remain in section 745 of the bill when the House votes on the measure tomorrow.

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Demonstrating that Congress intends to put its own stamp on financial reform legislation, House Democrats on July 8 introduced their own scaled-back version of the new consumer protection agency proposed by President Obama. Coming on the heels of the president’s release of draft legislation to create a new independent regulator for financial products and services, House Democrats responded quickly on Wednesday by unveiling the Consumer Financial Protection Agency Act of 2009 (HR 3126).

The bill was introduced by House Financial Services Committee Chairman Barney Frank (D-MA). While it retains many of the key provisions outlined within the White House bill—including the transfer of consumer financial regulations to the CFPA in order for the new agency to write and enforce rules on financial products of both banks and non-banks—it is notable for several significant differences from the Obama proposal that may limit the CFPA’s jurisdiction.

In particular, the House bill preserves the current regulatory enforcement structure for the Community Reinvestment Act (CRA), which is overseen by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) in order to ensure that depository institutions are engaging in fair lending practices to low-income communities. Additionally, unlike the President’s bill, which assumes a merger with OTS and OCC to form a new prudential regulator titled the National Bank Supervisory (NBS), H.R. 3126 makes no mention of NBS. Frank’s press release goes on to state that the details of the President’s merger proposal will be considered “at [a] later date.”
 

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The Treasury Department today released draft legislation outlining a central pillar of the Obama administration’s financial regulatory overhaul: the creation of the Consumer Financial Protection Agency (CFPA), an independent regulator with broad authority over “any financial product or service” used by consumers. Seeking to clarify the administration’s June 17th white paper on financial regulatory reform, the legislation provides lawmakers and industry leaders with the statutory details regarding the proposed CFPA.

According to the draft language, in order to continuously monitor consumer risks, the agency—composed of a five-member board led by a presidentially-appointed director subject to Senate confirmation—would collect information related to loans, products, and services from both banks and non-banks. Additionally, consumer financial regulations that are currently divided among several agencies—the Federal Reserve, FDIC, Office of Comptroller of the Currency, Office of Thrift Supervision, Federal Trade Commission, and National Credit Union Administration—will be consolidated within the CFPA. The legislation would have these regulators transfer functions, rules, and employees to the new CFPA within six to eighteen months following enactment. The agency must research, analyze, and report on consumer awareness and understanding of financial products, related disclosure statements, related risks and benefits, and consumer behavior related to such products. The agency would also collect and track consumer complaints and create a new, integrated disclosure form for mortgage transactions, unless the Department of Housing and Urban Development and the Fed can achieve the same goal prior to the transfer of such responsibilities to the CFPA. There are also provisions related to civil penalties and enforcement authority.

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House Financial Services Committee Chairman Barney Frank (D-MA) changed the game yesterday with his announcement that the House would tackle financial reform by considering a series of smaller, targeted bills rather than a more comprehensive reform bill. Frank said he anticipates his committee will move four to six separate bills between July and the end of the year. First out of the gate will be legislation to create a new "Consumer Financial Protection Agency" proposed by the Obama administration.

With Frank’s Senate counterpart, Banking Committee Chairman Chris Dodd (D-CT), fully occupied managing health care legislation, the timeline continues to slip in the upper chamber. Frank remains committed, however, to working the major issues through his committee this summer, and has already scheduled thirteen hearings and markups for July.

There is little doubt Congress will impose new consumer protections on the financial service industry. Whether it will create a new agency to police them remains to be seen. Given budget concerns and other competing priorities, Congress may ultimately determine to enhance the consumer protection requirements, including simplified disclosure, within the existing regulatory framework of the SEC, FDIC, Federal Reserve, and the potentially combined Offices of the Comptroller of the Currency and Thrift Supervision.

House Financial Services Committee Schedule

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The European Commission yesterday put forward its framework proposal on Financial Supervision in Europe. The proposal covers a set of far-reaching reforms to the current architecture of supervisory committees, with the creation of a new European Systemic Risk Council (ESRC) and European System of Financial Supervisors (ESFS), composed of new European Supervisory Authorities. Legislation to embody these proposals will follow in the autumn and will thus be finalized under the leadership of new Commissioners who will be appointed during the summer.

With this initiative, the Commission is responding to the weaknesses identified during the financial crisis as well as to the G20 call to take action to build a stronger, more globally consistent, regulatory and supervisory system for financial services. The proposed financial supervision package involves two key elements.

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In a more subdued response to the AIG bonus brouhaha than last week, the House Financial Services Committee yesterday approved legislation that would amend the Emergency Economic Stabilization Act to prohibit companies receiving TARP money from paying “unreasonable and excessive compensation and compensation not based on performance standards.” Two Republicans, Reps. Ed Royce (CA) and Walter B. Jones (NC), broke ranks to vote with the committee’s Democrats in favor of the bill (H.R. 1664). Some of our Congressional sources have said the full House may vote on H.R. 1664 as early as next week. The Senate, however, is almost certain not to address executive compensation until after it returns on April 20th from the spring Congressional recess. Democratic leaders from both sides of the Capitol have greatly dialed down the executive compensation rhetoric since last week.

Under H.R. 1664, the Treasury Secretary, with the members of the Financial Institutions Examination Council, would have a month to define “unreasonable and excessive compensation” and set performance based standards that companies would use to determine circumstances under which a bonus or retention payment would be allowed. Examples of the standards Treasury is to include are the stability of the financial institution; its ability to repay the government; individual performance; employees’ adherence to risk management requirements; and any others that would provide greater accountability to shareholders and taxpayers.

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Congress took the first major step yesterday in levying heavy taxes on bonuses paid to executives of AIG and to institutions who have been recipients of significant (more that $ 5 billion) assistance from the Troubled Asset Relief Program (TARP) in recent months. In a move best described as spasmodic, the House voted 323-93 to place a 90 percent tax on the bonuses of TARP-recipient executives with adjusted gross incomes over $250,000.

Senate Majority Leader Harry Reid (D-NV) moved to bring the legislation to the floor yesterday, but Sen. Kyl (R-AZ) blocked the attempt, saying the Senate needs more time to consider the ramifications. Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) introduced a bill late yesterday that would impose a 70 percent excise tax—35 percent on the TARP recipient companies and 35 percent on their executives—on excessive bonuses, defined as anything exceeding $50,000 in a calendar year.

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There was plenty of activity in Washington this week but none of it enough to settle the roiling stock market, which keeps sinking like a rock. Is there too much activity or not enough of the right kind of activity?

From the White House and the Treasury—The Obama Administration released the details of its “Making Home Affordable” program, which was introduced in February. With incentives for mortgage holders and servicers, audit and documentation requirements, and qualification limits, major industry players such as the Mortgage Bankers Association and the American Bankers Association reacted positively to the new details.

From the Treasury—Secretary Tim Geithner was on Capitol Hill most of the week defending and explaining the president’s budget proposal, especially the $250 billion “contingent reserve” amount in the Treasury budget to support up to $750 billion worth of asset purchases. Geithner assured the Senate Finance Committee that the $750 billion is not an estimate of future rescue efforts, but rather “just a recognition of reality that it’s possible we’re going to need to do this with more resources.” The Secretary promised to provide more details in the coming weeks on future bailout efforts, including plans for the remaining $300 billion of TARP funds, and the eagerly anticipated public private partnership to take on troubled assets.

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The New Democrat Coalition is not especially new, but the recent changes resulting from the 2008 elections and the financial crisis have given it new prominence and increased importance in the House of Representatives. The New Dems may be the moderating force behind financial regulatory reform in Congress. Already, several of its centrist members helped stall the mortgage cramdown legislation that was scheduled for a House vote yesterday and is now pushed out to next week to allow for changes that can attract additional votes from moderates.

Founded in 1997, the New Democrat Coalition is “committed to enacting policies that encourage economic growth, maintain U.S. competitiveness, meet the new challenges posed by globalization in the 21st century, and strengthen our standing in the world.” With 67 Democratic House members, sixteen of whom are on the House Financial Services Committee, the coalition is taking on “regulatory reform of the financial services industry” through its Financial Services Task Force. It is chaired by Reps. Melissa Bean (D-IL) and Jim Himes (D-CT), who both have business backgrounds, and Himes is an alumnus of Goldman Sachs. The New Dems Chairwoman, Rep. Ellen Tauscher (D-CA), is a former investment banker who was one of the first women ever to hold a seat on the New York Stock Exchange.

The group just released its 21 principles for financial regulatory reform organized around the goals of efficient and effective regulation; market stability and transparency; and robust consumer and investor protection. One principle shows a willingness to reform the way in which mark-to-market accounting rules are applied, something that House Republicans have wanted to do for months. Perhaps the New Dems can help revive the bipartisanship that has been lacking in the House thus far this year.

New Democrat Coalition's 21 Principles for Reforming the Financial System (PDF)

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In another indication of the knock-on effects of the financial crisis, the auto industry's number one supporter in Congress suffered a preliminary defeat today in his effort to retain a powerful House committee chairmanship. House Energy and Commerce Committee Chairman John Dingell (D-MI) failed to get enough Democratic leadership votes today to retain his chairmanship over challenger Rep. Henry Waxman (D-CA). The Democratic Steering Committee, a leadership organization responsible for determining Democratic committee assignments, voted for Waxman by a vote of 25-22. Waxman is one of the most liberal members of Congress and a champion of environmental issues. Many environmental activists believe that Dingell has spent too long protecting the auto industry, which has resulted in a weakened industry that has failed to produce the cleaner, more efficient cars that consumers want.

The good news for Dingell is he gets a do-over with the full Democratic Caucus which is likely to vote tomorrow to accept or reject the steering committee decision. Dingell believes he has enough votes to prevail over Waxman. The two-dozen incoming Democratic freshmen will participate in that vote, and some believe that Waxman, who endorsed Barack Obama in the Democratic primary, will have more sway with the freshman class. Dingell, who endorsed Hillary Clinton, is expected to draw support from politically moderate members and older members, who are committed to preserving the seniority system.

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The Senate returns to work today and the House is scheduled to convene on Wednesday. In the past several days, it has become clear that neither significant economic stimulus nor aid to the auto industry is likely to be approved during this "lame duck" session of the 110th Congress. The sticking point appears to be the inability of Democratic leaders to attract sufficient Republican support for either measure.

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Events of yesterday continued to demonstrate how major elements of the current financial crisis are interrelated. First, with the world waiting to see how a new administration in Washington will approach the financial crisis, President Bush's announcement of a November 15 summit of international leaders puts the discussion of a new regulatory regime for the financial sector squarely in the middle of the U.S. presidential transition. While both Sens. John McCain and Barack Obama praised the summit, it will present the winner of the November 4 election with an interesting quandary—how to participate in and/or react to the event. It may also force the hand of the President-Elect to name his economic team before the summit takes place. Doing so will allow the administration-in-waiting to have a more organized response to the events of the summit.

Second, the impacts of the financial crisis on the U.S. auto industry may be putting additional pressure on the $700 billion rescue package enacted on October 3. As potential car buyers continue to face a credit crunch, bipartisan leaders of the Michigan congressional delegation yesterday urged the Treasury to make a portion of the funds available to back auto loans. The request came from House Energy and Commerce Committee Chair John Dingell (D-MI) and Rep. Fred Upton (R-MI). If Treasury takes up that suggestion, funds available to supply capital to community banks or purchased troubled mortgages would be reduced.

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The House of Representatives just passed the financial rescue package (H.R. 1424) by a vote of 263 to 171. The breakdown of Democrats and Republicans supporting the bill was 172 and 91 respectively. The Democrats picked up 32 votes and the Republicans picked up 26.

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The president signed the Emergency Economic Stabilization Act of 2008 within hours of the House passing the bill on October 3rd. As the administration begins the important work of implementing the Troubled Asset Relief Program (TARP), we thought it would be instructive to explore the reasons why House Democrats and Republicans shifted their votes so that Monday’s defeat became Friday’s victory.

Although one Democrat switched from a yes to no (Rep. Jim McDermott, D-WA), 33 House Democrats switched their votes to support the rescue plan on Friday. The fiscally conservative Blue Dog Caucus, which had been almost evenly split on Monday added five more to the yes column on Friday. A large number of freshman Democrats and Congressional Black Caucus (CBC) members, many of whom had been skeptical of the bailout plan on Monday, shifted in support of the final package. The 31 of 39 CBC members who voted yes said they did so based on the promises of Sen. Barack Obama, who said he would deliver economic stimulus legislation, a change in bankruptcy laws, and more regulation of Wall Street early in an Obama Administration. Democrats also picked up seven California members due to the escalation of financial problems in their state.

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Wall Street is still on pins and needles due to the increase in jobless claims, the decline in factory orders, and the uncertainty surrounding tomorrow’s House vote on the financial rescue plan. The Dow Jones Industrial Average lost nearly 350 points today.

The House Rules Committee is meeting as we write. Our contacts on the Hill are telling us to expect a "closed rule," which means the House would not be able to amend the Senate-passed legislation. The House is scheduled to convene at 9 a.m. tomorrow for a yet-undetermined amount of debate followed by the vote.

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Last night's Senate vote on the financial rescue plan, a 74-25 victory, followed the pattern of Monday's House vote. The more conservative and liberal Senators voted against it as well as Senators in tight races. Since only one-third of the Senate must stand for re-election, the third category had much less impact than in the House.

On the House side, there are signs of positive movement on both sides of the aisle. Based on conversations with our contacts on the Hill, we believe as many as 20-25 members who voted against the package on Monday may now support the plan.

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With confidence in Senate passage running high, Washington's attention -- and Wall Street's -- is turning back to the House. House Majority Whip James Clyburn (D-SC) told reporters this afternoon that he expects the House to vote on the Senate rescue package on Friday. On Thursday, the House will likely debate the "rule" for the package, which dictates whether and how members can amend the legislation.

Discussion today has focused on the impact in the House of the items the Senate is adding to the legislative package. The calculus involved is illustrated by looking at one of the "add-ons," the one-year fix for the alternative minimum tax (AMT). If Congress does not alter the AMT, as many as 22 million additional taxpayers, including many middle income taxpayers, could confront it in April. The House recently voted on a stand-alone AMT relief bill on September 24, and 393 members voted for it – 200 Democrats and 193 Republicans.

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The stock market closed a few minutes ago and today's increase of 485 points in the Dow Jones Industrial Average is indicative of the view that Washington is moving past the shock of yesterday's House vote and towards a new push to enact a financial rescue package.

Key leadership players have been working hard today to rally the troops and change the package in ways that will garner additional votes in the House. The White House conducted a series of outreach calls today to groups ranging from GOP "insiders" to representatives of state and local government and other advocacy organizations. All of this was designed to drive home the point that action is needed on a plan very much like the one put before the House yesterday. Congressional leaders have been doing likewise. Individual Members of Congress -- many of whom have gone home for the two day Rosh Hashanah break -- are also hearing from their constituents. Given the recent tenor of constituent input, that may not be helpful.

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Progress towards action in the House and Senate continues apace. House leaders expect a vote on the Emergency Economic Stabilization Act tomorrow. The Senate will take up the measure as well, but action on Monday may be limited to filing a cloture petition, which would mature on Wednesday. The Senate could vote tomorrow if leaders can obtain a unanimous consent agreement, but that is difficult.

While the bipartisan, bicameral leadership appears united on approving the package, there is enough opposition on the right and left to make things interesting. This is particularly true in the House, where some influential members on both ends of the spectrum are organizing opposition.

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House and Senate negotiators and the Administration reached a deal overnight on the financial rescue package. Staff has spent a sleepless night drafting and a vote in the House is expected as early a this evening.

Our next report will have more details, but the plan does include the following

• A total of $ 700 billion for investment in troubled assets.
• A phased approach to releasing funds as described in our report last evening.
• A requirement for the president to submit a plan for recouping lost funds if the program does not turn a profit upon the sale of assets.
• Limits on "golden parachutes" for executives of forms from which assets are purchased.

The other elements are largely along the lines readers of these reports will expect.

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Leading negotiators from the House and Senate began a negotiating session at noon today with a goal to work as long as it takes to resolve the 15 issues remaining on the table. They are taking a break as we write this, with plans to return to their discussions this evening. Secretary Paulson is in the Capitol to assist the negotiators and ensure the Administration's views are being taken into account. Momentum continues to build towards the announcement of a deal by Sunday afternoon. Leaders of the House and Senate hope to have votes on Monday, but the complexities of drafting the legislation may require that votes be pushed off until after Rosh Hashanah which ends on Tuesday at sundown.

As this afternoon's negotiating session began Sens. Judd Gregg (R-NH) and Mitch McConnell (R-KY) both said the Senators and Representatives meeting today would stay in the room until a deal was reached. While that may be over-optimistic, it is indicative of the fact that these leaders are feeling pressure to get something accomplished.

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The Dow Jones Industrial Average is ending the week with an increase of 138 points based on today's news that discussions over the financial rescue package are moving forward. Expectations for enactment of a package are such that key legislators are now pointing to the opening of the Asian markets on Monday, which takes place Sunday night East Coast Time, as the deadline for, at the very least, having a consensus rescue package ready for passage.

At this point, there are four key negotiators finalizing the terms of a legislative compromise: House Financial Services Chairman Barney Frank (D-MA), Senate Banking Committee Chairman Chris Dodd (D-CT), House Minority Whip Roy Blunt (R-MO), and Senate Budget Committee Ranking Member Judd Gregg (R-NH).

Senate Minority Leader Mitch McConnell (R-KY) held a news conference earlier this afternoon declaring that Gregg has full authority to represent Senate Republicans. Gregg, who appeared with McConnell, told reporters the markets are "telling us we better do something, and they're telling us in pretty stark terms." While Gregg agreed there are still "knotty and difficult issues" to negotiate, he said they are making progress.

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Momentum continues to build for enactment of the $700 billion Administration plan to buy troubled assets from financial institutions. As an indicator of the increasingly upbeat mood around the package, the Dow Jones Industrial Average increased by over 200 points for the day.

As we write this, President Bush is meeting with Sens. McCain and Obama and Congressional leaders to discuss how to advance the plan. While this meeting is viewed by many as a sideshow, a forceful statement by the sitting president and the two men seeking to replace him will add to the overall sense that action on Capitol Hill is soon possible.

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There has been a seismic shift in Congressional attitude over the past 48 hours. Skepticism over the administration’s plan has evolved into hardened resolve to achieve consensus and pass a financial relief package as soon as possible. People are still reluctant to commit to a timeframe, but the pace has quickened. Whereas two days ago, Senate staff were waiting for their House counterparts to draft a plan, reports now indicate that both sides began working together yesterday to craft a single, unified plan.

Publicly, several lawmakers, including Senate Banking Chairman Chris Dodd (D-CT) and House Financial Services Chairman Barney Frank (D-MA), have said Congress and the administration are very close to striking a deal in the next “day or so.” At 10 a.m. this morning Frank hosted Dodd as well as Sen. Bob Bennett (R-UT), a senior member of the Senate Banking Committee, and Rep. Spencer Bachus (R-AL), the ranking member of the House Financial Services Committee, to continue drafting the plan. We have reports that the drafting session will expand to include others and will continue all day. Congressional leaders are working to have a consensus plan by today’s 4 p.m. meeting at the White House with President Bush and the presidential candidates.

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Spending their every waking hour on Capitol Hill trying to convince lawmakers to accept the financial bailout plan may finally be paying off for Treasury Secretary Paulson and Fed Chairman Bernanke. Reports coming out of meetings held this morning and early afternoon have been decidedly more upbeat than anything we have heard thus far.

In addition to testifying at hearings and briefing large groups, Paulson held a private meeting earlier with House Speaker Nancy Pelosi (D-CA) and Minority Leader John Boehner (R-OH). While aides would not confirm whether the leaders and Paulson struck an agreement, there are signs the administration has made changes to the Paulson plan. In his House Banking Committee testimony this afternoon, close watchers noted that Paulson modified his remarks to allow for a compromise on limiting executive compensation as long as it does not "undermine the effectiveness of the program."

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Washington continues its bipolar approach to dealing with the Bush Administration's proposed plan to purchase, manage and sell troubled assets from financial institutions. Key leaders continue to work on the contours of a plan so that it can be voted on late this week. At the same time, rank and file Members, particularly on the GOP side, are turning up the volume on their objections. We continue to believe prospects are good for enactment of a plan to create a $700 billion investment to purchase assets. However it is clear that several pounds of flesh will be extracted from Secretary Paulson along the way.

Since yesterday, it has become more evident that executive compensation limits of some kind will be included in the final plan. The Administration still opposes this strongly, but they will have little choice but to accept it. Otherwise, there appears to be agreement on including outside oversight over Treasury on the program, protections against foreclosures on homeowners, and the option for Treasury to take warrants for stock from companies that sell assets to them.

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