President Obama has officially requested an increase to the statutory debt limit.

The formal request gives both chambers 15 days to vote on whether to approve of the $1.2 trillion hike. The House plans to vote on this request on Jan. 18, a spokeswoman for House Majority Leader Eric Cantor (R-Va.) said.

In a letter to House and Senate leaders sent Thursday, the president informed the Congress that the federal government had come within $100 billion of the existing limit and that another increase is “required to meet existing commitments.” The boost will be the third and final increase to the ceiling under the debt-limit deal struck in August, and is intended to cover the government’s borrowing through the 2012 elections.

The United States reached the $15.194 trillion debt limit on Jan. 4, according to Treasury statements. Since that time, Treasury has employed the “extraordinary measure” of tapping into its Exchange Stabilization Fund to avoid exceeding the limit.

Read more at The Hill.

From AFP:

The US government will hit its debt limit in the first week of January, the Treasury Department said on Tuesday, as it pointed to an imminent request for $1.2 trillion increase.

The government is expected to come within $100 billion of the current $15.2 trillion ceiling by the end of the year, Treasury Department officials said.

That effectively puts lawmakers on notice that they will have until mid-January to oppose a fresh increase.

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From BloombergNews:

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

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At the outset of the financial crisis, the Bush administration began an unprecedented government takeover of the private sector with the so-called bailouts. When Barack Obama took office, he doubled down on this gamble and kicked the door wide open, pumping massive amounts of taxpayer cash in order to further control the private sector, particularly the financial sector. This unprecedented growth in government control included creating new federal agencies such as the Consumer Financial Protection Bureau (CFPB) and and expanding existing agencies such as the U.S. Commodity Futures Trading Commission (CFTC).

The professed purpose of these government agencies is to “keep watch” on the business dealings of corporations in order to “protect” the consumer. But after reading some documents JW obtained recently revealing the generous salaries and bonuses being paid to government workers in these agencies, I have one question: Who is watching out for the American taxpayer?

We obtained the documents in response to Freedom of Information (FOIA) requests filed on July 12, 2011, with the CFPB and the CFTC, as well as with the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the U.S. Treasury, and the Securities & Exchange Commission (SEC).

The FOIAs requested Standard Form 50s (SF-50s) from each of the agencies. An SF-50 is a human resources form that documents any change in a government worker’s employment situation, including pay. Check out some of the responses we received:

• The CFPB responded on August 4, 2011. The SF-50s revealed CFPB workers being hired at salaries twice the maximum ordinarily allowed under guidelines published each year by the Office of Personnel Management. A dozen new hires take home more than $225,000 a year, and a student intern is currently being paid $42,036 “through completion of education & study” as a communications trainee.

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From The Hill:

House Republicans released an email Friday evening showing that a senior Treasury Department official in August expressed concern that the Energy Department’s early 2011 restructuring of the solar company Solyndra’s $535 million loan guarantee may have been illegal.

The restructuring put private investors, who were providing another $75 million to the struggling company, first in line for repayment if the company went under. In addition, House Republicans probing Solyndra – which collapsed several weeks ago – say DOE may have violated requirements to consult with Treasury on the revision of the loan agreement.

The Energy and Commerce Committee’s GOP leaders wrote to Treasury Secretary Tim Geithner Friday seeking documents about Treasury’s communication with the White House, DOE and other agencies on the financing.

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The White House has denied pressuring Ford to pull its ad that criticizes competitors that took and have yet to repay taxpayer dollars from the Troubled Asset Relief Program. However, the Obama administration can’t deny a new gift it showers on General Motors and Chrysler in its package of tax hikes to pay for its so-called American Jobs Act.

For all the talk about fairness and equity with the so-called Buffett Rule, there is one sneaky loophole in the Obama revenue proposal that has largely escaped notice. In doublespeak that would make even George Orwell do a doubletake, President Obama’s “financial crisis responsibility fee” would tax banks, insurance companies and brokerage houses that have paid back their bailout money — and even some firms that never took a bailout — to pay the tab of irresponsible firms, namely the auto companies that still owe the government billions.

“We also ask the largest financial firms — companies saved by tax dollars during the financial crisis — to repay the American people for every dime that we spent,” President Obama proclaimed in the Rose Garden two weeks ago. But the details of this “responsibility fee” in the 80-page plan the president submitted to the Joint Committee on Taxation makes it clear that this fee will only be on firms that have already repaid the TARP funds and likely on some firms who never took a dime of taxpayer money.

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From Reuters:

The Treasury is weighing a proposal to eliminate some, but not all, of the taxes on overseas profits of U.S.-based companies, the Wall Street Journal reported on Saturday, citing two people familiar with the deliberations.

Eliminating the taxes on some of the profits is a central element of the Obama administration’s broader plans to overhaul the corporate tax code, the newspaper said.

Business have long complained that the U.S. system of taxing companies’ overseas profits hits companies that have often already paid been taxed in the countries where the profits were earned.

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From the Associated Press:

Treasury Secretary Timothy Geithner is telling Congress that he will halt investments in two big government pension plans Monday to allow the government to continue borrowing money for the next few months.

Geithner says the government will reach its $14.3 trillion borrowing limit on Monday. Republicans have held back supporting an increase in the borrowing limit, saying they want Congress first to approve more spending cuts.

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The recent correction in the commodities markets may be providing Bernake, Geithner and their easy money acolytes with a sense of relief given the relentless run up in prices of raw materials since the announcement of QE back in 2008, but they should not sleep tight just yet.  As anyone in the markets will tell you, when any underlying commodity has a price move so vertical in its trajectory it’s bound to face a correction as the smart money, having gotten in for fundamental reasons much earlier along the trend line now wait for the panic buyers or the Johnny-come-lately’s to give the rally that last unsustainable spike to unload their longs and leave the suckers holding $40.00 silver in their purses.

So one must step back and take a long view.  Although it would appear that those of us who warn that inflation is not just a threat but very much a fact of life now were knee-jerk pontificators jumping on the commodities rally trend for political (read: Fed/Obama bashing) reasons, the analysis is quite sound.  Most important, it is methodical not emotional as price surges tend to make investors and analysts from time to time.

Here are some facts: even with the inevitable correction in commodities, as of this writing crude oil is 35% more expensive than it was a year ago…advancing with ups and downs along the way from as low as $17.50/bbl in November of 2001 to its current level of over $100/bbl or around a 19% annual appreciation in a decade since the Fed started giving away dollars.  In that same year silver is still up 93%   Wheat 84%. Cotton 100%  Coffee 55%. Cattle 10%, etc.  In that same decade the USD index against all currencies shed 40% of its value.  Gold is up 22% for the year.  More revealing, the most precious metal and most stable of exchange mechanisms is up an astonishing 450% since 2001. Put another way, whereas the dollar was worth 1/250^th of an ounce of gold in 2001, it is now only worth 1/1500^th.  Money can be printed with much more ease and speed than gold can be mined.

To understand why the Bernake’s and Geithner’s of the world view CPI through rose-tinted glasses we must remember who they are.  They are wonks who have spent their entire careers lecturing and/or fidgeting with economies without actively participating in them.  They are awash in data and are hardwired to extrapolate patterns from the past to predict the future.  But we have only had a non-gold fiat monetary system in place since 1971 which is hardly enough time to get a handle on repeating macro-economic cycles in such an ever changing and dynamic landscape.  And I want to offer something else.  From the late 1940s to the mid-1980s the United States was the dominant manufacturer in the world.  The reason?  Of our three main foreign competitors today, China, Japan and Germany, one was mired for much of the third quarter of the 20^th Century in a disastrous experiment with Maoist communism while the latter two’s urban centers had been reduced to utter wasteland as their reward for launching the most devastating war in human history.  Indeed, all of Europe was digging out of the wreckage of their mass-fratricide, including a bankrupted Great Britain…once the supreme power of the world.

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So much for GM’s self-imposed ban on political contributions. According to The Washington Post:

General Motors reported making $47,000 in contributions to lawmakers and congressional candidates in July, the first it has made since November 2008. The company stopped giving through its political action committee just as it began to seek government assistance to stay in business.

The U.S. government provided support but also steered the company through bankruptcy. Today, the Treasury owns a 60 percent stake in the company, which recently announced plans to go public with a stock sale.

GM earlier gave $41,000 to groups and causes associated with lawmakers. The latest contributions were made directly to lawmakers’ campaigns.

The Post notes the fact that GM is spreading the wealth around to both political parties: $26,000 to Republicans and $21,000 to Democrats. Below is the list of GM PAC recipients from the Federal Election Commission:

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He was hired by the Obama administration to slash executive compensation at companies bailed out by the federal government. But now he’s involved in a salary controversy of his own. In a Washington corruption chronicles classic, the Obama administration can’t even shoot straight on the pay of its pay czar!

I’m speaking of Kenneth Feinberg, President Obama’s “Special Master for TARP Executive Compensation.” Judicial Watch recently received documents from the Treasury Department indicating that Feinberg received a $120,830 annual salary to establish executive compensation levels at companies bailed out by the federal government. We got hold of these documents pursuant to a Freedom of Information Act (FOIA) request we filed on July 20, 2010.

Now there’s nothing necessarily unusual about a federal appointee hauling in six figures. But here’s the problem: These documents contradict multiple press reports that Feinberg would not be compensated for this work for the Treasury Department at all.

When President Obama appointed Washington lawyer Feinberg “Pay Czar” in 2009, the press reported that he would perform his duties pro bono. Dozens of mainstream media stories confirmed that Feinberg, founder and managing partner of the Washington, D.C., firm Feinberg, Rozen, LLP, would not receive a salary to set pay limits for more than two dozen executives at companies receiving government bailouts.

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At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.

It is a drama that no longer surprises us, unfortunately. Wealthy investors use their access to elected officials and their checkbook to advocacy groups for private profit. But this story has a twist; a top executive of CRL when this deal went down, Eric Stein, is now working at the Treasury Department,  heading up the proposed Consumer Financial Protection Agency. Mr. Stein will be the chief federal official designing regulations to protect consumers. Right.

This is that story.

Financial crises create opportunities. Prudent and discerning entrepreneurs who save their capital for a rainy day are able to acquire assets at firesale prices and put these assets to higher and better uses. Market forces cleanse wasteful malinvestments, innovative business models make existing ones obsolete and the economy roars forward all the stronger for it.

But while market entrepreneurs generally prosper during times of great dislocation, ultimately to the benefit of all participants in the economy, today political entrepreneurs have hijacked the economic system. The politically connected elites have used this downturn to carry out a massive wealth transfer from the people to the public and private sectors, fleecing the middle class for their own enrichment.  In their hypocrisy, the long ago small businesses that grew large because of free markets have helped chain these markets through lobbying for regulations and subsidies to shield themselves from competition and their own errors.

This has occurred most egregiously in the financial sector, where there has been a veritable free-for-all in legalized political plunder.  Those who understand the illusory nature of our monetary and symbiotically related political and financial systems have clamored to profit as much as possible before the house of cards falls, with the sanction of our supposed representatives.

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The activity surrounding the controversial Consumer Financial Protection Agency (CFPA) in the financial reform legislation is really picking up these days.  But many Americans would never know it.  It seems Democrats may have learned something from the experience of the health care bill after all.  In their efforts to avert a repeat disaster of losing control of the message, they appear to be taking every step necessary to ensure that the public engages as little as possible in this debate.

But I assure you, this is a debate that the American public should engage in, pronto.

Because behind the scenes, certain lobbyists are quietly but aggressively scurrying about, pushing hard for the passage of the CFPA in a power grab by the Executive Branch that would dwarf the Health Care Reform bill and the Patriot Act.  And with the passage of the proposed CFPA, one man in particular with a history tied to some of the deepest tentacles in the financial crisis – and to the Community Reinvestment Act changes of 1995 – would gain the power to selectively manipulate the entire landscape of the financial, small business and housing markets.

Last week, we reintroduced you to an early trigger in the financial crisis, with good reason. In “Death by Senator: As Financial Reform Looms, We Revisit IndyMac,” we revisited the role that Senator Chuck Schumer’s (D-NY) very public letter played in the fall of one financial institution.  As I ended that piece, I teased that there was more to the story that would soon follow.

So, let’s pick up from June 30, 2008.

Merely days after the now infamous Schumer letter triggered a run on the bank that would total over $1.3 billion, this lengthy and scathing report was released to the public:

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As the Central Illinois 912 Project has addressed previously on BigGovernment.com, Shorebank is a community bank based out of Chicago that is engaged in microfinancing – a hybrid of capitalism and social justice.  They have been supported and promoted by individuals like Van Jones, President Obama, President Clinton, and Secretary Clinton. They have also become heavily involved in the financing of green projects (see here and here).

In 2009, Shorebank received more than $35 million in federal funds for grants and new market tax credits. Despite this new flow of funds to extend to their customers and loan recipients, Shorebank reported a loss of $50 million in 2009 alone and was issued a “cease and desist” order by the FDIC and the Illinois Department of Financial and Professional Regulation.  In addition, ShoreBank was receiving strong warnings from the Federal Reserve Bank of Chicago. Their dire financial state had lead them to initially seek a “bailout” from the State of Illinois, promoted by Chicago Congresswoman Jan Shakowsky and Senator Dick Durbin. However, they have since decided that they can find capital without seeking state help.

Interestingly, Shorebank is currently seeking support from a few large banks –all of which have received federal bailout money from the Toxic Asset Relief Program (TARP) and are Shorebank stockholders. These banks include Citigroup, Bank of America, and Chase. Citigroup initially received $25 billion in taxpayer money (plus another $20 billion soon after), and Bank of America initially received $15 billion (plus another $20 billion after that). Neither of these banks has completely paid back their TARP loan. Chase also received $25 billion in bailout funds, but repaid its loan in December of 2009. So rather than seeking a bailout from a state that has a $13 billion budget deficit, Shorebank is seeking to be bailed out by banks that have already been bailed out by federal taxpayers – which is, in essence, an indirect, federally-funded bailout.

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Before the most recent report on Lehman Brothers’ use of Enron-like methods to hide debt from its balance sheet, Greece had recently been accused of similar shenangians.  The sovereign was under scrutiny for swaps it had set up with Goldman Sachs that allowed the nation to mask its real debt load, effectively cooking its books in order to meet the fiscal standards required for admittance into the Eurozone in 2001.  This was not the first time this type of deceptive transaction had been consummated.

The joyfully iconoclastic financial blog Zero Hedge had uncovered a little-known 2001 report by a little-known Italian Economist named Gustavo Piga which showed that Italy had used almost the exact same transactions as those used by the Greeks to mask their finances and gain entrance to the Eurozone in 1997.  For his courageous exposé, most disturbingly Piga’s life was threatened.  Why was this the case?

Piga had been the first to find “…a real-world example of how sovereign borrowers can use derivatives to window-dress public accounts as a means of achieving short-term political goals.”  As the Council on Foreign Relations which collaborated with Piga on the report noted, Italy was able to do this by “taking a cash advance in 1997 against an expected foreign exchange profit in 1998.  Under accounting rules, this is simply impermissible.  Borrowers cannot use loans to anticipate capital gains on a bond.”  The transactions allowed Italy to artifically reduce their deficit in 1997 by increasing their deficit in 1998.

And according to the CFR, what was the significance of this Enron-like Italian book-cooking?

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The Federal Reserve’s purchase of $300 billion in Treasury debt, as well as its purchase of mortgage-backed securities, has aptly been described as “monetizing the U.S. government debt,” with appropriate concern that it will fuel inflation. 

If President Obama fancies himself a twenty-first century Abraham Lincoln, then we need Timothy Geithner to be his Salmon Chase. Lincoln’s Treasury Secretary was remarkably successful at financing the Civil War, with only limited inflation, and remarkable fidelity to the Constitution.

Chase was a radical Ohio abolitionist before the war (sometimes called the state’s “attorney general for runaway Negroes”), and a relentlessly ambitious rival of Abraham Lincoln. After Lincoln beat Chase for the 1860 Republican nomination, he made him his Secretary of the Treasury. Almost all historians regard Lincoln’s ability to keep Chase on board as one of the marks of his genius as a statesman.

Chase was also a hard-money man, and abhorred paper money—especially the paper emitted by state banks, excoriated (if somewhat exaggeratedly) as “wildcat banks”– creditors were said to have to battle wildcats to attempt to redeem the worthless notes of these reckless frontier banks. Chase believed that the United States needed a national currency, issued by a national banking system. As the Civil War’s costs grew exponentially, Congress pressed him to monetize the government’s debt by issuing Treasury notes unredeemable in gold or silver, and to declare them to be legal tender for all debts—the “greenbacks,” which color our paper money to this day. Chase stuck to his constitutional guns for as long as he could, but finally gave in. But he “hated the crime about to be committed,” as historian Bray Hammond put it. By the end of the war, Chase got his national banking system, and had eliminated unconstitutional state-bank paper currency.

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Press Release

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
http://republicans.oversight.house.gov

News Release

Treasury IG Agrees to Request by Issa and Collins to Conduct a Review of ACORN

September 24, 2009

WASHINGTON D.C. –Treasury Department Inspector General, J. Russell George agreed to comply with a request submitted by House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-Calif.) and Senate Committee on Homeland Security and Government Affairs Ranking Member Susan Collins (R-Maine) to conduct a review of the Association of Community Organizations for Reform Now (ACORN) and of the IRS’s oversight of nonprofit organizations.

Read the whole release here.