There's been a lot of buzz in Washington and around the country the last couple of years about earmarks. It's the new four letter word of politics, with practically every Senator and Representative talking publicly about how awful they are. Yet earmarks in and of themselves are really not the problem. It is the process by which they are enacted that is usually where we run into trouble. The secretive, back-room addition of an earmark to legislation at the last minute, without review, in order to reward powerful special interests, campaign contributors, or other politically connected individuals or groups is where the real proble lies.

The best way to combat that is through transparency, and because of the efforts of a few individuals and organizations, the information on the size and scope of earmarks has improved considerably. Taxpayers for Common Sense (TCS), a watchdog group here in Washington, was at the forefront of publishing earmark information. On February 14, 2008, they published a complete database of FY 2008 earmarks, made available on their website for downloading in an excel file.

This week, the group Legistorm has joined in the earmarks game as well, with a searchable website that allows users to have better access to peruse the database put together by TCS. They launched the website this week and it builds upon the TCS work to promote better access to earmarking data. And lucky for all of us, the new site and the TCS data includes executive branch earmarks - or those earmarks requested by the president. Most of this data is left out of an earlier attempt at earmark transparency put up by OMB.

It looks as though both Legistorm and TCS will continue to have their work cut out for them next year. The House Republican caucus rejected a proposed short-term moritorium on earmark requests today:

For the second year in a row, the House GOP caucus Thursday rejected an effort to limit its members' requests for special projects, or earmarks, in this case a short-term moratorium.

Check out the new resource and search through tens of billions of dollars in earmarks.

The National Journal has been reporting this week that current Congressional Budget Office (CBO) Director Peter Orszag is in line to head up the Office of Management and Budget in the upcoming Obama administration. Orszag formerly served as a senior economic adviser during the Clinton administration and held a post in the economics studies program at the Brookings Institution.

Orszag has been impressive in his two year stint as the head of the CBO, which he began in January, 2007 and I think he would be an excellent choice to run the OMB for Obama. BudgetBlog readers will certainly know that we have high esteem for Dr. Orszag.

Back in August, I blogged about a report issued by the U.S. Senate Permanent Subcommittee on Investigations about how foreign banks, specifically large European banks, were helping wealthy Americans evade U.S. taxes.

This week on Wednesday, the Justice Department, in conjunction with the Internal Revenue Service (IRS), announced the indicment of Raoul Weill, a senior executive at the Swiss banking giant UBS. Sharp BudgetBlog readers will remember that UBS was one of the European banks named in the Senate investigation released over the summer. Seems like things have come full circle for UBS. From the Justice Department press release:

According to the criminal indictment, between 2002 and 2007, Weil oversaw the Swiss bank's cross-border private banking business that provided services to some 20,000 U.S. clients who reportedly concealed approximately $20 billion in assets from the IRS. Weil, who allegedly referred to this business as "toxic waste," mandated that Swiss bankers grow the cross-border business, despite knowing that this would cause bankers to violate U.S. law.

According to the indictment, when given a choice to wind down, sell or spin off the cross-border business, Weil chose to continue the business because of its profitability. Between 2002 and 2007, the United States cross-border business generated between $200 million a year in revenue for the Swiss bank.

Unfortunately, prosecutors may not be able to obtain the information necessary to convict Mr. Weill or expand their investigation to pursue U.S. clients who participated in tax evasion. Even if they are able to convict Mr. Weill, it's not assured that Switzerland would extradite him to the U.S. According to a report in the Wall Street Journal, the Swiss government has "firmly dug in its heels against the U.S. investigation, citing Swiss laws that generally prohibit banks from revealing the names of clients." The U.S. has demanded that the Swiss government step in to assure the investigation can continue, but doing so would likely hurt the prospects for Swiss banks, which have long served as a refuge for the rich and powerful in their attempts to horde assets.

It is unclear how much trouble Mr. Weill has gotten himself into, but if convicted of the felony charge of conspiring to defraud the U.S. government, he could serve up to 5 years in jail. Somehow that doesn't seem to me like enough for stealing $1.2 billion from the American people.

Jail time for Mr. Weill aside, the broader hope is that this case will open up Swiss banks and indeed the international banking industry generally, so we have a more honest, transparent, banking system that is held accountable to laws and regulations. That's the hope, but I'm not holding my breath.

Rethinking the crux of the financial markets crisis and its solutions, Treasury Secretary Henry Paulson announced today that the $700 billion Troubled Asset Relief Program (TARP), originally intended to take toxic financial assets off the books of lending institutions to spur market liquidity, will not be used to purchase such assets.

Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending. But other strategies I will outline will help to alleviate the pressure of illiquid assets.

This statement ultimately undermines the "Do Anything" approach to legislating. When Paulson made his initial pitch for a Wall Street bailout, lawmakers correctly balked. While we noted that Congress should proceed deliberately, they instead rushed a legislative counter-proposal and quickly passed it. And although various objections to such a bailout were offered, one offered by economists was that the underlying problem (and its ultimate solution) of the financial markets crisis was not entirely clear.

Thankfully (I think), the TARP legislation was written with enough flexibility that it allows Paulson to abandon the explicit purpose of the program in favor of adopting strategies (like injecting capital into banks in exchange for equity). Paulson continues to search for an appropriate solution.

For better of worse, Congress crafted a law that gave the Treasury Secretary authority to throw $700 billion at, well, whoever for whatever. Will it work? Who knows? Congressional hearings and empirical research might have helped identify the problem and solution sooner. Instead, Washington decided to the correct course of action was to freak out and throw bails of cash at whoever is asking for it.

A learning moment? Hmmm...

Image by Flickr user kenyee used under a Creative Commons license.

On the Depart of Treasury Emergency Economic Stabilization Act (EESA, AKA TARP) website, the Department has posted, according EESA law, a list of transactions made under TARP. And here they are, all $125 billion* worth of them:

Also in accord with the law, Treasury has released its First Tranche Report to Congress. Among other things, the report includes:

• A description of all the transactions made during the reporting period.
• A description of the pricing mechanism for the transactions.
• A justification of the price paid for, and other financial terms associated with, the
• transactions.

However, ProPublica, is one step ahead of Treasury. In addition to transactions completed under TARP, ProPublica is tracking which banks have are participating in TARP's Capital Purchase Program but have yet to receive funds. Their tally indicates that Treasury has committed over $172 billion to banks.

The Treasury Department has been writing checks to banks for a couple weeks now. And although the law that created the Troubled Asset Relief Program (TARP) mandates the Secretary to "make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under this Act, within 2 business days of purchase," the Treasury Dept. has yet to publish such information.

However, ProPublica is using media reports to track Treasury's purchases of financial institution stock under TARP's Capital Purchase Program.

It's great that ProPublica is providing this service, but they shouldn't have to be. The government should already be doing this. How hard could it be to put a spreadsheet up on website?

If anything, the collapse of the nation's financial markets has forced even the staunchest of believers in the Free Market^® to consider the possibility that sometimes the "market" doesn't know best.

Testifying before the House Oversight and Government Reform Committee, free market high priest Alan Greenspan expressed "shock" at the current economic situation.

Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief....I've found a flaw [in my ideology]. I don't know how significant or permanent it is. But I've been very distressed by that fact.

Good on Greenspan for admitting flaws in his ideology. Hopefully the frame of the debate will shift from whether or not the government has a role in the economy to what kind of role the government should play.

But revealing is this statement:

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.

It shows precisely why Free Market^® policy usually ends up not really working out as planned. Organizations do not have self-interest. The people that run corporations, however, do. And when executives are rewarded handsomely (AIG, Lehman, Merrill Lynch, etc.) even when their leadership ruins the firm, then one should hardly be shocked when executives engage in the sort of risky behavior that ultimately destroys the business and trashes shareholder equity.

Image by Flickr user mattyp_ used under a Create Commons license.

On Tuesday, President Bush issued one of his infamous signing statements for a bill that will improve the independence of inspector general (IG) offices within the federal government. Since IG offices monitor efficiency, waste, and fraud in the government, but are also housed within the federal government, Congress saw fit to enact new measures to insulate IG offices from political pressures. (More on the bill here.)

Bush objects to a part of the bill that attempts to stem political interference in the work of IG offices. If administration officials find an IG particularly vexing, they can slash the IG's budget in order to reduce their capacity to uncover government fraud and waste. Since the budget process is not transparent, the administration can claim its request is all the IG needs — without revealing the intra-administration conflict.

The bill requires the president to include in his annual budget request to Congress a separate line item for each agency's IG. More importantly, it requires the president to submit the IG's original request for funds, that is, what each IG believes he or she needs to carry out the functions of the office.

In the signing statement, Bush basically makes the claim that the president can ignore this provision. He complains, "[T]he bill includes provisions that purport to direct or regulate the content of the President's budget submissions, including provisions that purport to direct the President to include the comments of Inspectors General with respect to those submissions."

Actually, upon Bush's signature, the bill does not "purport" anything. Bills passed by Congress and signed a president become law. They set rules and conditions of behavior for the government and society. Mr. Bush would do well to consult a dictionary for the meaning of both words.

Bush goes on to state, "The executive branch shall construe section 8 of the bill in a manner consistent with the President's constitutional authority to recommend for congressional consideration such measures as the President shall judge necessary and expedient."

Of note, the bill does not require the president or Congress to actually abide by the IG's request; it merely requires greater transparency so that Congress and the public have access an important bit of government information. As it is, nothing in the bill impedes a president's ability to carry out any function.

Luckily for inspectors general, and for the prospects of good governance, Bush won't be submitting any more budget requests to Congress.

In a stark reversal of Monday's vote, the House approved the Senate-passed version of a financial market rescue bill. By a vote of 263 to 171, the House passed a $700 billion plan to buy up troubled financial assets, patch the AMT for a year, and extend dozens of expiring tax cuts (some for a year, some for two). While the final cost to taxpayers of the bailout is impossible to estimate, the tax portion of the bill will reduce revenues by $107 billion.

Moments after passage, President Bush signed the bill into law.

President Bush signs the Emergency Economic Stabilization Act of 2008 in the Oval Office after the House passed the $700 billion financial bailout bill at the White House in Washington, Friday, Oct. 3, 2008. (AP Photo/Charles Dharapak)

Great news from the technology trade pubs today - FedSpending.org has been selected by PC World Magazine as one of the top five sites out there that will raise your political awareness. Woohoo!

Below is the screenshot of the article:

Read the full article: 5 Sites That Will Boost Your Political Awareness

Neil Gordon blogs over at the Project on Government Oversight about a troubling provision in the current debate over a bailout proposal for Wall Street that would give Secretary of the Treasury Hank Paulson the ability to waive provisions and requirements of the Federal Acquisition Register (FAR), the set of regulations that govern how the feds run government contracting. Gordon points out a very disturbing irony of this provision:

This would have enabled the Treasury Secretary to award billions of dollars in sole-source contracts to private asset managers firms and financial consultants, even those with a direct financial interest in the bailout. In addition, the Secretary could waive other FAR provisions that protect taxpayers.

Gordon also points out the fascinating analysis released Monday from the Center for Responsive Politics which showed a relationship between campaign contributions from the finance, insurance, and real estate sectors and the way House members voted on the bailout on Monday. The data might shock you - it shocked me, although I suppose after so many years working in Washington, these things should stop surprising me.

It seems that House members who voted for the bill on Monday have collected about 51 percent more in campaign contributions from the affected industries (finance, insurance and real estate) than those who voted against it. Among Democrats, that discrepancy between bill supporters and opponents is an even more astonishing 88 percent.

I wonder if any of those contributions came from companies who may gain from a government contract to fix this mess? Gulp!

If Monday's Wall Street bailout bill, which the House failed to pass, was, as House Minority Leader John A. Boehner (R-OH) called it, a "crap sandwich," then the Senate's latest offering is a crap sandwich platter: a crap sandwich served with a heaping side of tax cuts and an FDIC deposit limit increase for desert.

The Senate will vote on a package today that includes the bailout legislation rejected by the House on Monday, a Senate-approved bill containing some $120 billion in tax cuts, and an increase in the FDIC-insured deposit limit from $100,000 to $250,000 through the end of 2009, with premium increases funded by the governemnt. The tax language in the new financial rescue bill will come in the form of an amendment that replicates a Seante-passed tax package (HR 6049) that contains an AMT patch and an extension of dozens of expiring tax cuts. The move is intended to entice more House Republicans to vote for the bailout. House Democrats, however, object to the tax bill because the cost of extending the expiring tax cuts remains only partially offset, but like Winnie the Pooh and honey, Republicans just cannot say "no" to a tax cut.

The text of the bill can be found here.

The Washington Post: Lawmakers Revise Rescue Plan
CQ Politics: Financial Rescue Vote Set for Wednesday in Senate
AP: Hoyer, Blunt hopeful of progress on rescue bill
Roll Call: Senate to Move Next on Bailout

Image by Flickr user disneyandy used under a Creative Commons license

Congressional leaders were left scratching their heads, contemplating what to do next after the House failed, by a vote of 205-228 to approve a $700 billion plan to buy up troubled financial assets that are purportedly threatening the financial markets.

CQ Politics reports that although the House voted to adjourn, they will return Thursday to continue working on assuaging the angst of financial markets. Calling the issue "much too important to simply let fail," Treasury Secretary Henry Paulson vowed to return to working out a plan to bailout Wall Street. However, legislators have been at best vague in spelling out what to expect in the next few days. As Speaker of the House Nancy Pelosi said, "stay tuned."

Members of the House Democratic Leadership, from left, House Majority Leader Rep. Steny Hoyer, D-Md., House Speaker Nancy Pelosi, House Democratic Caucus Chair Rep. Rahm Emanuel, D-Ill. and House Majority Whip James Clyburn, D-S.C. meet reporters on Capitol Hill in Washington, Monday, Sept. 29, 2008. (AP Photo/Lawrence Jackson)

This post is an updated version of our previous post on a summary of the $700 billion Wall Street bailout plan that the House rejected (205-228) this afternoon.

Size: Up to $700 billion
• $250 billion would be immediately available to Treasury to buy up troubled assets
• Another $100 billion would be available to Treasury "upon report to Congress"
• The final $350 billion would be available upon request of the presidentt, which Congress could reject within 15 days . The rejection could then be vetoed by the president.

Mechanics
• The government could purchase mortgage-backed securities and other troubled assets and their derivatives. With support from the Fed, it could also purchase other troubled assets from investment, commercial, and smaller community banks, credit unions, pension funds, and local governments.

Taxpayer Protection
• Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, if the firm becomes profitable.
• Participating firms would be subject to executive pay restrictions, implemented through the tax code. The plan would also bar firms from giving "golden parachutes" to executives leaving participating firms for reasons other than retirement
• The Treasury Secretary would have the authority to establish an insurance fund not unlike the FDIC to guarantee troubled assets; premiums would be paid for by private firms
• If, after five years, the Congressional Budget Office and the Office of Management and Budget agree that the government has not profited from the sale of troubled assets, the president must submit to Congress a plan to recuperate the cost of the plan from the financial industry

Foreclosure Protection
• Treasury can encourage mortgage servicers to modify troubled mortgages
• Requires federal entities that own mortgages to develop a plan to mitigate the foreclosure rate
• Relaxes requirements for eligibility for the Hope for Homeowners program

Oversight and Transparency
• A bipartisan oversight board appointed by members of both parties in Congress would be created
• An inspector general would monitor Treasury decisions, and the Government Accountability Office would regularly audit the program
• Treasury would be required to make transactions made through the troubled asset program available publicly online
• There would be conflict-of-interest rules for firms hired by the Treasury to help run the program
• There would be judicial review of Treasury decisions

Executive Power Enhancement
• An affirmation of the SEC head to suspend mark-to-market accounting, thus allowing firms to report asset values different from what the market believes them to be
• Allows Treasury Secretary to suspend federal contracting rules

Not Included
• The package does not have language that would allow bankruptcy judges adjust mortgage rates or principal
• No profits from the scheme would flow to an affordable housing trust fund

Media reports and a press release from House Speaker Nancy Pelosi (D-CA) indicate that Congressional leaders and the White House have agreed to a package of measures designed to prevent a financial market meltdown. An official announcement of agreement is expected tonight, and final details of the plan remain unsettled. Here are the package's main provisions:

Size: Up to $700 billion
• $250 billion would be immediately available to Treasury to buy up troubled assets
• Another $100 billion would be available to Treasury "upon report to Congress"
• The final $350 billion would be available upon request of the president. Media reports, however, are inconsistent on this. Some are reporting says that the money would be available "only upon action by Congress," while others say it would be available upon presidential request, which Congress could reject. The rejection could then be vetoed.

Mechanics
• The government could purchase mortgage-backed securities and other troubled assets from investment, commercial, and smaller community banks, credit unions, pension funds, and local governments.

Taxpayer Protection
• Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock.
• Participating firms would be subject to executive pay restrictions, although the details remain vague
• The Treasury Secretary would have the authority to establish an insurance fund not unlike the FDIC to guarantee troubled assets; premiums would be paid for by private firms
• A fee may be imposed upon the banking industry to pay for the bailout if the government loses money on the purchase of these toxic assets. Reports on this provisions vary, an no details have been announced

Foreclosure Protection
• Treasury can renegotiate mortgages purchased by the federal government with borrowers
• A "tax holiday" for homeowners facing foreclosure will be extended

Oversight and Transparency
• A bipartisan oversight board appointed by members of both parties in Congress would be created
• An inspector general would monitor Treasury decisions, and the Government Accountability Office would regularly audit the program
• Treasury would be required to make transactions made through the troubled asset program available publicly online
• There would be conflict-of-interest rules for firms hired by the Treasury to help run the program
• There would be judicial review of Treasury decisions

Not Included
• The package does not have language that would allow bankruptcy judges adjust mortgage rates or principal
• No profits from the scheme would flow to an affordable housing trust fund

This information has been compiled from the following news sources:
The Wall Street Journal
The New York Times
The Washington Post
McClatchy Newspapers
Congressional Quarterly ($)