Finance & Economy

Treasury Secretary Timothy Geithner is coming under new pressure from conservative Republicans and liberal Democrats to resign.

Credit unions and small banks won a major carve-out over the objections of Rep. Barney Frank.

The pitched lobbying battle between the financial industry and retailers over credit card fees will ratchet up following a mixed government report on the issue.

The office found in a quarter of the 57,000 reports of stimulus projects discrepancies over how stimulus money was spent.

The nation’s mayors are pressing lawmakers to send more money directly to cities if Congress passes a second stimulus.

A key House panel voted to give the government broad new powers that could break up large financial firms.

Congressional budget experts predict defense spending will decline steadily as a share of the U.S. gross domestic product, dipping below 3 percent by 2028.

Rep. Paul Kanjorski on Wednesday unveiled a measure granting the government new powers to break up large financial firms.

Arguing that the return of unused or returned TARP funds represents a budget deficit involves a heavy dose of smoke and mirrors, according to the chairman of the Senate Budget Committee.

“It’s the ultimate in spin exercise,” Sen. Judd Gregg (R-N.H.) said of the administration’s floated plan to put toward the deficit $210 billion in funds never used or paid back by banks.

Gregg helped write the TARP law, which specifically states that TARP funds paid back by the banks are to go to debt relief. So saying that you’re going to do so is really just following the statute’s intent.

As for the funds not spent, “you don’t get debt reduction if the money is not spent,” Gregg said.

He also said the $700 billion TARP was sold on the idea that all of the funds would not be needed. The idea was to create a large fund to create confidence the U.S. would back up the financial system.

Geithner’s decision whether to extend the $700 billion Wall Street bailout before the end of the year pits politics versus prudence.

Prudence dictates an extension. Politically, the smart move is to allow the TARP to terminate and pivot to deficit reduction, according to several industry sources.

“Extending TARP makes sense in terms of the economy,” said Scott Talbott of the Financial Services Roundtable, “but it would be extremely unpopular politically.”

An extension would run through next October.

While Wall Street banks are handing out bonuses and markets are rising, there are worries that a new bubble, particularly in financial stocks, is now forming, in large part because of the government intervention.

“I think they are in a bit of a bind,” said one financial lobbyist.

Extending the TARP would give Treasury a cushion of approximately $210 billion in unspent TARP funds, plus tens of billions more that are expected to be paid back over the next 12 months.

Pressure is building to do new things with TARP, given the 10.2 percent unemployment figure and a lack of lending by banks.

“We need a rainy day fund in case it rains,” said one lobbyist who supports an extension.

Yet few pieces of legislation have been less popular, and a request for an extension would not be seen favorably on Capitol Hill, two financial industry sources said.

The AFL-CIO has not taken a position on the issue. Neither have associations representing small and large banks, including the American Bankers Association.

Paul Merski, chief economist for the Independent Community Bankers of America, said restrictions and rules associated with the TARP funds, including compensation limits, make the program unattractive.

“There are plenty of banks that would like to shore up capital, but TARP isn’t the way to do it,” he said.

Others believe that behind the scenes, banks would be happy to see the program extended, though they are loath to say so publicly. Doing so would immediately lead to calls for the program to end, one lobbyist noted.