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Senator Chris Dodd, Chairman of the Senate Banking Committee, has pressed forward with a sweeping overhaul of the financial industry. 

This is one of the key initiatives, critical to improving the Democrats' electoral chances,  that President Barack Obama is targeting for passage before the mid-term elections.

The bill's purpose is to address the systemic risk that caused the Great Recession.  The financial crisis that has unfolded over the last 2 years has shown the failure of the late 1990's and 2000's deregulation push.  The previous regulatory system dated to the 1930's and was enacted, ironically, to counter the excesses of Walls Street leading to the Great Depression.

Rules that for decades had protected the American banking and insurance industries from self-destructing - and in the process destroying Main Street too - were dumped in the name of "financial innovation".

In the process, former Federal Reserve Chairman's Alan Greenspan's concept that markets worked best with little regulation has been exposed as a very expensive, incorrect theory with almost apocalyptic results for the U.S. and global economies.

Just ask the 15 million people who are unemployed - and face bleak prospects to find new jobs as the economy has shifted to a seemingly different growth pattern.

While the Dodd bill is seen as weak tea by some left-wing members of the Democratic Party, and heavy-handed by many Republicans, it represents a first, comprehensive attempt to restore order to the markets.

While the banking system was brought back from the brink by both the efforts of the Bush and Obama Administrations , many of the underlying practices that caused the fall of Wall Street remain in the system, ready to tip markets into crisis again.

This bill could just be the beginning of an effort to save capitalism from itself.

Here's Senator Dodd on his proposed reform package:

CNBC reports:

While Dodd wouldn't put a timetable on when the bill will make it through and brushed aside notions that the bill was 95 percent through the amendment process, he said both parties generally agree on the need to prevent major economic contagion from the collapse of so-called "too big to fail" businesses.

"That's a major part of this bill, that we never ever again have a bailout of a firm because they have an implicit guarantee from the federal government that they'll get a check if they get themselves in trouble," Dodd said.

Senator Bob Corker, a member of the Senate Banking Committee, gives the Republican point of view on the reform:

The New York Times reports on the bill:

The plan would create a nine-member council, led by the Treasury secretary, to watch for systemic risks, and direct the Federal Reserve to supervise the nation’s largest and most interconnected financial institutions, not just banks.

But the bill, which would amount to the most sweeping change in financial rules since the Depression, would preserve much of the existing regulatory architecture, which has been criticized for being too fragmented. And it would rely on a new mechanism for seizing and liquidating a huge financial company on the verge of failure, one that would diminish, but not eliminate, the likelihood of future bailouts.

The proposal, which was put forward by Christopher J. Dodd, the chairman of the Senate Banking Committee, included significant concessions to Republicans, compared with an initial draft Mr. Dodd released in November. It also contained provisions urged by President Obama to restrict banks’ ability to engage in certain forms of speculative trading.

“This proposal provides a strong foundation to build a safer financial system,” Mr. Obama said, adding, “As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill, and will fight against efforts to weaken it.”

Senate Republicans were muted in their response, saying they would introduce amendments to press their case on areas of disagreement, including the powers of a new Consumer Financial Protection Bureau that would set up inside the Fed.

But whether the legislation could pass in an election year, with a rancorous debate on health care looming over the Capitol, remained uncertain. Assuming all Democrats and independents in the Senate voted for it, at least one Republican would have to back it as well to avoid a filibuster.

Politico reports on one of the most controversial components of the new bill, the inclusion of the "Volcker Rule":

The cynics called it a stunt, a photo-op and dead on arrival.

But when Senate Banking Committee Chairman Chris Dodd (D-Conn.) unveiled his Wall Street reform proposal Monday, there it was: the much-maligned “Volcker rule.”

Dodd’s decision to include the provision in his surprisingly tough reform bill meant two things: The Treasury Department had more sway than anyone expected on the Dodd proposal, and much of the financial punditocracy was just dead wrong about “dead on arrival.”

The rule — which is named after former Fed Chairman Paul Volcker, a White House economic adviser who persuaded President Barack Obama to propose it earlier this year — would require regulators to prohibit so-called proprietary trading by deposit-taking banks. That is the process whereby banks trade their own money in the markets, rather than client money; it has been accused of opening up opportunities for excessive risk taking and conflicts of interest.

Dodd’s proposal will also prevent banks from investing in or owning hedge funds and private equity funds. The measure calls for a study by a new Financial Stability Oversight Council to figure out how best to implement the new regulations.

According to a senior administration official, Dodd decided to include the Volcker provisions in the measure only this past weekend.

“I’ll paraphrase Mark Twain,” said the gleeful official Monday. “The rumors of its demise were premature.”

The official said that Treasury Secretary Timothy Geithner and other top aides never gave up on the idea, and pushed it in dozens of meetings with Dodd and other members of the Senate Banking Committee. Geithner himself met with eight senators in sessions during the month of March.

There's an enhanced jobs bill working its way through Congress, reform of the financial regulatory system, climate legislation and immigration reform are some of the big issues that the White House has confirmed its intention of pursuing.

Later this month, led by strategically-challenged "activists", there will be a comprehensive immigration reform march in Washington.

Will it put immigration reform on the agenda in 2010?  Unlikely.  The White House has said that it is not on the docket for this year.

The political calculations of passing immigration reform are complex at any time. In an election year marked by massive unemployment, vituperative partisan bickering and scared incumbents fearing a big loss at the ballot box, it is even more daunting.

Immigration reform sure looks like a 2011 effort.

Politico reports on the White House's immigration reform challenge:

Obama is facing a political squeeze play on the issue. As Graham was warning that health care reform could derail immigration reform, members of the Congressional Hispanic Caucus were arriving at the White House to discuss their threat to drop support for health care reform legislation if illegal immigrants are not permitted to buy insurance through new federal exchanges.

And in fact, the White House’s public nods toward immigration reform in recent days could be intended, in part, to keep Latino members from breaking out in full-scale revolt over the health care bill’s treatment of undocumented workers.

So what will be the President do?  The Washington Post reports on what's next after health care:

Despite holding high-profile meetings last week on energy and immigration reform, President Obama will focus the next few months on two issues that could help his party in November: stronger financial regulations and ways to mitigate a Supreme Court ruling that allows direct corporate spending on behalf of candidates.

Those priorities, although still difficult to achieve in a partisan Congress, are highly popular with the Democratic base and could force Republicans to choose between supporting the president or defending Wall Street when much of the country blames big business for the economic decline.

Such an agenda will give the rest of the legislative calendar, compressed by the midterm election season, a distinctly political cast. It will also push energy and immigration reform, two of Obama's most far-reaching campaign pledges, into the next Congress, which is likely to be more influenced by the Republican opposition.



President Barack Obama has delayed a state visit to Asia, Nancy Pelosi is saying she'll have the votes for the President to sign the bill,  and even key Senators are promising that they will move with unusual speed.

The Democratic Party is seeing it's future - and knows that it could be quite bleak for them in the November mid-term elections if they don't have a health care reform to tout.

Republicans are guaranteed to use health reform as a line of attack in the elections - whether or not it passes.

So the calculus is simple.  Do you want to be branded a "big government liberal" that fails to execute, or a Progressive that is able to deliver on promises?

Moreover, will you have any credibility to represent the true traditions of the Progressive movement in this country, a movement that has delivered some of the most important reforms this country has seen, at a time where people are desperate for a government to fix the most pressing issues facing American in a generation?

"I want some courage," President Obama said during a campaign stop this morning in Ohio.  Will the Democrats in Congress give it to him in the form a reform bill? 

In many ways the fate of the Democratic Party - and future of the Obama Presidency - are directly connected to the answer.

Politico reports about the struggle to get the votes:

Barack Obama faces the stiffest test of his first-term agenda — and a defining moment in his presidency — as Democratic Party leaders mount a fevered campaign this week to round up votes for a historic health care bill.

Two top aides — senior adviser David Axelrod and press secretary Robert Gibbs — said Sunday the votes will be there.

Other Democrats aren’t so sure.

After nearly a year of haggling, most of House Speaker Nancy Pelosi’s 252 Democratic colleagues still have concerns about passing the Senate bill, even with some fixes. Their objections range from the ideological to the procedural, and the shape of the final package hinges on an obscure, unelected official — Senate parliamentarian Alan Frumin.

Majority Whip Dick Durbin sounded cautiously optimistic on Sunday about finishing the health care reform this week:

Visit msnbc.com for breaking news, world news, and news about the economy

Visit msnbc.com for breaking news, world news, and news about the economy

Time reports on the stakes for the President of winning or losing this fight:

And now health reform stands as another crucial juncture. If the President fails to win the upcoming series of congressional votes that are designed to get health care legislation to his desk, it will be a calamitous failure for his presidency and for him personally, dwarfing the potholes he has hit during his first bumpy year in office. Indeed, the notion of defeat is so unthinkable for his Administration that Obama's foremost argument in rounding up support in the House and Senate is a panoptic imperative: health care is too important — politically and substantively — to fail. Should the effort collapse, regaining political traction would be nigh impossible any time soon, if ever. And a potential comeback would be in further jeopardy because Obama is so unaccustomed to losing.

Here's the President's advisor on Meet the Press saying that health care reform will pass:

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A true democracy can only exist if the citizen is properly and broadly educated to be an informed participant in the political system.  Moreover, education confers benefits to the nation's economic progress, the Founders thought.  Better educated people could more easily develop new industries and better manage America's thriving capitalist economy.

Indeed, we have seen the fruits of that vision in America's global leadership over the last century.

The American public education system was the bright star at the center of American success.  It was the great equalizer that took in immigrants and kids from disadvantaged homes and in turn propelled legions of educated people ready to climb the social pyramid and win - in academia, enterprise, and in public service.

But like all great man-made systems, America's public education has decayed.  Over the years, it has been captured by special interests - unions, corporate constituencies and even political forces that have sought to both control and profit from the gigantic expenditures in education.

In Los Angeles, for example, the Los Angeles Unified School District (LAUSD), the second biggest in the country, is rife with failure.  Embarrassingly low graduation rates, low college attendance of those that actually manage to graduate, social promotion, special interests and the politicians that those interests control, have come together in a toxic stew that has left America's second largest city with a third world education system.

If indeed a successful public education system is the cornerstone of democracy and national prosperity, Los Angeles is showing the way in how we can effectively devolve as a society. 

Through long-term, unchecked systemic failure of our critical public schools, the LAUSD is now the driving force in perpetuating poverty, deepening class and ethnic divisions and presiding over the destruction of human capital at an unprecedented scale in the Los Angeles metropolitan region.

In the 21st century economy, knowledge workers, people who have succeeded in school and college, will be the major participants of a prosperous nation.  Those kids left behind by the incompetence of LAUSD, and other notable failures across the country, will most likely be destined to make minimal contributions to their own prosperity or to society.

While this stark reality seems intractable, a harbinger of total collapse of our democracy, it is not.

Corruption and malfeasance in the LAUSD can be rooted out through effective law enforcement.

Voters can remove the paid and bought for politicians that have run the system as a personal power and economic base.  These are the politicians - for they cannot be confused with leaders - that have thrust the LAUSD into near bankruptcy, both financial and moral.

Great teachers can be identified and supported.  They are a critical part of the solution, not the problem.  But they need effective allies to push back the ravenous bureaucracy that every day consumes their best efforts.

Parents can be inculcated with an ethos of educational excellence - and made full partners in the success of their kid's education.

Corrupt organizations like LAUSD can rarely be reformed piecemeal.  They are literally captured by special interests and kids are a marginal concern to the bureaucracy and its handlers. 

The idea that we can wait, to paraphrase Martin Luther King Jr., for the system to somehow fix itself is unacceptable.  The lives of the 700,000+ students currently in the LAUSD are at stake.  The future of our city is inextricably bound to the success of public education.  And the potential for America to maintain and extend its global leadership is also in play.

The time has come for the entire community to come together to seek a radical solution to the LAUSD problem. 

No more step by step fights to gain minor victories.  We must have the vision and courage to break the grip of special interests and work tirelessly and with complete focus, to create a new public education system that will be the pride of the nation - and propel Los Angeles to its rightful place as the envisioned Metropolis of the West, a place of dreams and promise and fulfilment.

President Barack Obama is launching an ambitious effort to reform public education across the United States.  While a national effort is a positive step towards resolving our national education deficit, it will not be enough until local systems - such as LAUSD - are flushed of bad people, practices and rules, and kids are put first.

Our Founders knew it: the future of the United States' greatness will be driven by a world class public education system.  Are we up to the challenge of fulfilling that brilliant vision?  Yes, we are.

Here's the President speaking about our nation's education deficit:

And a key excerpt of the President's speech:

As a result, over the last few decades, we’ve lost ground.  One assessment shows American fifteen year olds no longer even near the top in math and science when compared to their peers around the world.  As referenced in the news report I mentioned, we’ve now fallen behind most wealthy countries in our high school graduation rates.  And while we once led the world in the proportion of college graduates we produced, today we no longer do. 

Not only does that risk our leadership as a nation, it consigns millions of Americans to a lesser future.  For we know that the level of education a person attains is increasingly a prerequisite for success and a predictor of the income that person will earn throughout his or her life.  Beyond the economic statistics is a less tangible but no less painful reality: unless we take action – unless we step up – there are countless children who will never realize their full talent and potential. 

I don’t accept that future for them.  And I don’t accept that future for the United States of America.  That’s why we’re engaged in a historic effort to redeem and improve  our public  schools: to raise the expectations for our students and for ourselves, to recognize and reward excellence, to improve performance in troubled schools, and to give our kids and our country the best chance to succeed in a changing world.

Under the leadership of an outstanding Education Secretary, Arne Duncan, we launched a Race to the Top, through which states compete for funding by committing to reform and raising standards, by rewarding good teaching, by supporting the development of better assessments to measure results, and by emphasizing math and science to help prepare children for college and careers. 

And on Monday, my administration will send to Congress our blueprint for an updated Elementary and Secondary Education Act to overhaul No Child Left Behind.  What this plan recognizes is that while the federal government can play a leading role in encouraging the reforms and high standards we need, the impetus for that change will come from states, and from local schools and school districts.  So, yes, we set a high bar – but we also provide educators the flexibility to reach it.

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The Sarbanes–Oxley Act, a heralded reform sparked by Enron, was supposed to impose much greater oversight of companies and their accounting policies.

The Great Recession had many causes.  But the failure of the venerated Walls Street institution Lehman Brothers was a tipping-point in what quickly became a financial-system wild fire.  Lehman's collapse sparked a global economic crisis that almost propelled the world into another Great Depression. 

Hank Paulson, Bush's Treasury Secretary, and Ben Bernanke's quick action to shore up the financial system most likely averted an unprecedented economic meltdown.  And in the process, the crisis revealed the systemic weakness of the American financial industry regulatory process.

Now a new comprehensive report on Lehman's collapse points to troubling accounting policies at the firm that may have contributed to its fragility and eventual failure.

Lehman's collapse was perhaps not inevitable.  It's management, states the report, was "grossly negligent".  And of course, Lehman's regulators were out to lunch.

As the economy slowly recovers from the Great Recession, it's imperative that Congress and regulators take this lesson and apply it - with a comprehensive reform of the financial system. 

The ideologically-driven deregulation mania of the 1990's and 2000's is a root cause for the trauma of today.  We must return to a sensible regulatory environment that protects both Wall Street from itself - and Main Street as well.

Much as the Roosevelt Administration did in the 1930's, the Federal Government must step in to put order in the markets and assure their stability with common sense regulations that support capitalism at its core.

The Wall Street Journal reports on Lehman's accounting actions that were allegedly similar to Enron's:

The New York Times reports on the Lehman report:

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

Mr. Fuld was “at least grossly negligent,” the report states, adding that Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

Lehman executives engaged in what the report characterized as “actionable balance sheet manipulation,” and “nonculpable errors of business judgment.”

The report draws no conclusions as to whether Lehman executives violated securities laws. But it does suggest that enough evidence exists for potential civil claims. Lehman executives are already defendants in civil suits, but have not been charged with any criminal wrongdoing.

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