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For a while now, it's seemed like Wall Street's message to government has been: We screwed up. But if you don't rescue us on our terms, you're all gonna be in trouble.

But you don't usually see that expressed quite as clearly as it was in a research memo sent out yesterday by a senior Deutsche Bank analyst, and obtained by TPMmuckraker.

In the memo -- one of Deutsche's daily "Economic Notes" sent out to the firm's clients, and to some members of the press -- Joseph LaVorgna, the bank's chief US economist, essentially, appears to warn that if the government doesn't pay high prices for the toxic assets on the books of Deutsche and other big firms, there will be massive consequences for the US economy.

Writes LaVorgna:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.


One leading economist described the memo to TPMmuckraker as a "ransom note" to the US government. And David Kotok of Cumberland Advisors, who writes such research memos for his own clients, acknowledged that the memo, like all such communications, could be interpreted as an attempt to influence policy-makers.

Still, seeing the memo as a threat to the government to drive the softest of bargains wouldn't be entirely fair. Kotok that cautioned that the effects of a single analyst's memo are limited: "Joe LaVorgna doesn't have enough clout to hold the US government hostage."

LaVorgna himself was blunt: "I don't write editorials," he told TPMmuckraker.

At the very least, the memo can be seen as a frank statement of position from the chief economist of a major bank: if the government doesn't cave and buy up all the banks' toxic assets at inflated prices, the country will suffer.

Nice fix we've got ourselves into.

It's a truism of Washington that the more your industry is regulated and influenced by the actions of the federal government, the more you're going to want to make your case in the halls of Congress and in the federal agencies that influence your business's fate. So at this important moment, when the federal government is preparing to overhaul the financial services industry, in all it's many parts, and when the largest bank bailout ever conceived is being rolled out, and the public is up in arms, it's worth stepping back and taking a look at how the affected industries will make their case and who they will make it to

First, it's worth keeping in mind that financial services are a diverse lot. The American Bankers Association represents the mainstream banks while the Credit Union National Association representes the nations credit unions. There's the Financial Services Forum that represents the largest financial institutions and others. The Independent Community Bankers of America have different interests, too. It opposes the merger of multiple banking regulators that's favored by larger banks. Then there are the divergent needs of semi-banks, represented by the Financial Services Roundtable which includes the likes of General Electric.

Private Equity has the Private Equity Council and the hedge funds industry as the Managed Funds Association, headed by Richard Baker, a former Republican Congressman from Louisiana which is most determined to stop a bill that would require them to disclose their holdings.

Not surprisingly, members of comittees that regulate the financial services tend to do quite well in terms of campaign contributions from the industry. Look at Rep. Jim Himes of Connecticut. The Democrat represents a lot of constituents who work in the financial services industry and according to the Center for Responsive Politics collected more from those companies that have received TARP monies than any other member. The center's full listing of members of the committee and what they got from TARP recipients is here. In the Senate, Chuck Schumer has long been seen as a defender of the financial services industry, a point articulated at length in this New York Times story in December. As financial services reform makes its way through Congress keep an eye on Schumer and what happens to proposals that come out of Barney Frank's Financial Service Committee when they hit Chris Dodd's Banking Committee. Today, for instance, the Senate Banking Committee is holding a hearing on proposed credit card regulations. which is a very big deal to bankers and of no real consequence to hedge funds. In the coming days, we'll keep an eye on those fights that have a real impact on policy but that also illustrate larger points about Washington has and hasn't changed under Barack Obama.

As we mentioned last week, Sen. Tom Coburn (R-OK) offered a successful amendment to the stimulus bill preventing any of its dollars from going to zero-gravity chairs, saunas, and rotating pastel lights.

The comic value of Coburn's crusade aside, his amendment also barred any money for parks, museums, theaters or any other arts organization that is struggling to survive the current economic downturn. And it looks like Democrats have kept that limitation after final conference talks on the bill.

As New York magazine reports, that's distressing news for cultural groups that call the Big Apple home -- and they're laying blame at the feet of Chuck Schumer (NY), the No. 3 Democrat in the Senate. Alliance for the Arts Randall Bourscheidt tells the magazine that Coburn's blanket limitation was

very prejudicial and, I think, intended to appeal to a constituency of Senator Coburn's which finds the arts an easy target for things they don't like. The surprising thing is that Senator Schumer voted for it.

One sector that looks set to be stimulated by the $789 billion bill Congress has in the works: the lobbying industry.

Foley Hoag, the K-Street- and Boston-based law and lobbying firm, announced today that it has put together a "new cross-discipline stimulus response team," designed to go after state and federal dollars allocated for new projects on behalf of clients.

According to a press release:

The firm is bringing together attorneys and policy specialists from a mix of practices certain to be at the center of new project-based financing, including Energy Technology & Renewables; Environment; Infrastructure & Privatization; Life Sciences, and Government Srategies (sic).

(Ed note: Lobbyists, it appears, have now been re-branded as "policy specialists". Kind of like how in Hollywood, agents are now known as "representation.")

The group will advise clients nationally and regionally as they pursue various aspects of stimulus-related work across a spectrum of business segments.


Doug McGarrah, who's running the new team, adds:
Our group has a sophisticated understanding of the steps involved in permitting, procurement and project delivery. We recognize this is an extraordinary opportunity to help advance the interests of our clients.


He goes on:
[M]any businesses and municipalities in our state will benefit from an infusion of federal funds. We are launching this integrated team with an eye toward helping clients react swiftly to, and capitalize on, this fast-moving Stimulus Package.


In other words: this stimulus bill is going to be a gold-mine, and we can help you get in on it.

We've put in a call to Foley Hoag to find out what exactly they plan to do for their clients, and will update with any details. And, needless to say, it seems unlikely that Foley Hoag is the only K Street firm able to spot an opportunity like this.

It's good to know that, even a $789 billion package designed to rescue the US economy hasn't put a damper on the spirit of self-interest.

Senate Judiciary Committee Chairman Patrick Leahy (D-VT) is getting laudable attention for his call for an independent "truth commission" to investigate civil liberties and human rights abuses committed during the Bush years. But as I mentioned earlier this week, the commission may not be directly legislated by Congress -- and one reason is that not every Democrat thinks it's necessary to do so.

Sen. Ben Cardin (D-MD) told me that the Obama Justice Department is already positioned to do the type of analysis that such an independent commission would perform, and he warned against investigating the Bush years "in a way that could impose partisan concerns."

Now Sen. Jack Reed (D-RI), a trusted ally of party leaders, is the second Democratic senator to openly question the need for a formal panel to look back on the Bush administration's potentially illegal misdeeds. As Reed told MSNBC today:

Read More →

The Hill reports that there might just be something to a meme that's been floating around about the Minnesota Senate race: That the Republican Party quite likes the situation of Norm Coleman's lawsuit keeping the Democrats one vote short of what they would otherwise have.

GOP aides told the paper that there is not a specific desire to wage the lawsuit as a stalling maneuver on Franken's seating. But one anonymous leadership aide did say that "It's better for us to have one less member." The same person also admitted this about Franken: "He's got a very good shot at winning."

And Ron Bonjean, a former Senate Republican aide who now runs a public-relations firm, had this to say: "If Franken was going to vote on the stimulus package, they wouldn't necessarily need one of the Republicans. So yeah, it matters."

Even if the lawsuit isn't specifically being done as a stall tactic, the delaying effect does appear to be a nice fringe benefit.

TPMDC was the first to report on the Democrats' plans to remove Senate-passed limits on executive pay from the final stimulus bill.

Today the WaPo followed by reporting the same thing ... but as we mentioned yesterday, Sens. Olympia Snowe (R-ME) and Ron Wyden (D-OR) aren't done fighting for their proposal to claw back $3.2 billion in bonuses paid out by banks after they got government rescue money last year.

"We are still having difficulty getting a straight answer as to whether or not it is still in the bill," Wyden's spokeswoman told me via e-mail. "Everyone we ask says that someone else is trying to kill it."

It ain't over till legislative language is formally filed -- but if you think they'll take up executive pay limits later this year, I have some worthless Fannie Mae stock to sell you.

Hmmm, Sen. Susan Collins (R-ME) is lucky that her tough re-election battle came last year and not in 2010. Collins had pushed for $1 billion in stimulus money for LIHEAP, the government's program to provide home heating money for low-income residents -- and a major Maine priority, given the state's chilly winters.

But LIHEAP looks zeroed out, according to the summary of the final stimulus deal that we've received (read here). Did Collins lose a battle over heating money, or just not pursue one?

Late Update: N.B. Until legislative language is formally filed on the bill today, there's always the possibility that these numbers could change. What we're bringing you are the freshest details.

The House's original stimulus bill, as we've reported for several weeks, gave mass transit the short end of the stick in favor of $30 billion for highways with no requirement that repairs be prioritized over new road-building.

But according to a confidential summary of the final stimulus deal that we've just been passed (view it here), mass transit got some more attention in the end. Amtrak and high-speed rail programs got $9.3 billion, an increase of about $6 billion from the Senate's version of the stimulus.

Still, environmentally sustainable transportation didn't completely win the day. A $5.5 billion transit-modernizing grant program eagerly anticipated by environmental advocates, which senators at first wanted to open up to highways, was removed entirely from the final stimulus deal.

Congress did agree on $8.4 billion for general public transportation grants, however. Vice President Biden (D-Amtrak), if you had any role in this: thanks.

Late Update: N.B. Until legislative language is formally filed on the bill today, there's always the possibility that these numbers could change. What we're bringing you are the freshest details.

Late Late Update: The sun has set in Washington, but the town is still on pins and needles over the actual text of the stimulus deal. House Majority Leader Steny Hoyer (D-MD) has issued a statement promising that the language "will be filed this evening, giving members enough time to review the [stimulus] conference report before voting on it tomorrow afternoon."

That means most rank-and-file lawmakers in both parties will have about 12 hours -- including slumber time -- to digest the bill, which is likely to run past the 300-page mark, before debate begins at 9am tomorrow.

We'll let you know first thing about the fate of executive pay limits and other remaining unknowns in the final stimulus, which is likely to be signed into law by President Obama before Monday. In the meantime, check out the details of the tax and health care provisions that made it in.

Thanks to a reader who sent us the final numbers on what's in and out of the final stimulus bill, we can finally start digging into the substance of the deal that's headed for approval by this weekend. (We have the charts of those internal numbers for you right here.)

Here's the first thing I noticed: Remember when we told you about the Senate's attempt to sneak in a $2 billion earmark for FutureGen, the Illinois "clean coal" plant? That's been zeroed out in the final stimulus pact.

As strange as this sounds, score one for Sen. Tom Coburn (R-OK).

Late Update: N.B. Until legislative language is formally filed on the bill today, there's always the possibility that these numbers could change. What we're bringing you are the freshest details.

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