Paul Krugman: “Most interest groups have stable political loyalties. For example, the coal industry always gives the vast bulk of its political contributions to Republicans, while teachers’ unions do the same for Democrats. You might have expected Wall Street to favor the G.O.P., which is always eager to cut taxes on the rich. In fact, however, the securities and investment industry — perhaps affected by New York’s social liberalism, perhaps recognizing the tendency of stocks to do much better when Democrats hold the White House — has historically split its support more or less equally between the two parties.”

“But that all changed with the onset of Obama rage. Wall Street overwhelmingly backed Mitt Romney in 2012, and invested heavily in Republicans once again this year. And the first payoff to that investment has already been realized. Last week Congress passed a bill to maintain funding for the U.S. government into next year, and included in that bill was a rollback of one provision of the 2010 financial reform.”

Sen. Elizabeth Warren (D-MA) told Salon that the Obama administration has been too cozy with Wall Street.

Said Warren: “He picked his economic team and when the going got tough, his economic team picked Wall Street. They protected Wall Street. Not families who were losing their homes. Not people who lost their jobs. Not young people who were struggling to get an education. And it happened over and over and over.”

Wonk Wire looks at newly-released secret recordings that Michael Lewis dubs the “Ray Rice video for the financial sector.”

“As political villains go, Wall Street seems to be enjoying something of a reprieve,” the Wall Street Journal reports.

“No industry was more battered on the airwaves in 2012 than the financial-services sector. Candidates, parties and outside groups aired a total of more than 280,000 political ads that mentioned Wall Street, ‘Big Banks,’ corporate ‘bailouts’ or some other reference to the industry, according to a tally by Kantar Media’s Campaign Media Analysis Group, which tracks advertising for campaigns and outside groups. Even when presidential ads are stripped out, the total spots eclipsed 200,000 airings.”

“That’s not the case this year. By mid-August, roughly 15,000 ads aired that referred to Wall Street or the financial-services industry, according to CMAG numbers, a sliver of the 2012 tally. The theme has only surfaced in 28 races, including a handful of governors’ races.”

Former Treasury Secretary Timothy Geithner, “whose time in Washington was often colored by accusations he was too close to Wall Street and did little to help Main Street, uses his 538-page book Stress Test to largely defend and explain the decisions he made during the financial crisis,” the Wall Street Journal reports.

Writes Geithner: “The inconvenient truth of financial-crisis response is that the actions that feel right are often wrong.”

“You could take Lloyd Blankfein into a dark alley and slit his throat, and it would satisfy them for about two days. Then the blood lust would rise again.”

— Bill Clinton, as recounted by former Treasury Secretary Tim Geithner to the New York Times.

Michael Lewis’ great new book Flash Boys comes out today and he was on 60 Minutes last night explaining how traders use high-frequency, algorithmic trading to rig the stock market in their favor.

[Read more…]

Wonk Wire has an unsettling chart of housing prices vs. laughter at Federal Reserve Board meetings.

“As the world’s financial system stood on the verge of collapse in October 2008, Janet L. Yellen was not even a full voting member of the Federal Reserve’s policy-making committee, but she was not shy about admonishing her colleagues for not acting faster,” the New York Times reports.

“What the transcripts show is a woman who was constantly pushing her peers — and also cleverly cajoling them — to do more to help ordinary households, not just financial institutions… In the end, during the most terrifying moments, Ms. Yellen helped persuade even the staunchest opponents of more aggressive actions to go along with the policies that the head of the Fed, Ben S. Bernanke, wanted.”

The Federal Reserve “released transcripts of 14 scheduled and emergency policy meetings it held in 2008, providing the most complete view yet into developments inside the nation’s central bank as the financial crisis worsened and threatened to plunge the U.S. into another Great Depression,” the Wall Street Journal reports.

“Two days after U.S. officials decided to let Lehman Brothers collapse in September 2008, and just before the Federal Reserve was about to unleash a torrent of new support programs to bolster a crumbling financial system, central-bank officials were still struggling to grasp the magnitude of the calamity that had hit the U.S. economy.

Wonk Wire: Who will benefit from the Fannie/Freddie windfall?

“When Janet Yellen takes over the reins of the Federal Reserve on Monday, she will become one of the most powerful women in the world — a historic achievement that she has yet to fully embrace,” the Washington Post reports.

“Her status has been trumpeted by others — she is featured in a Microsoft commercial “celebrating the heroic women of 2013” and heralded by glossy magazine Marie Claire as having ‘triumphed over the haters’ — but Yellen has been reticent about the role that her sex has played in her four-decade career. She has even instructed staff members that her new title be simply ‘chair,’ rather than ‘chairwoman.'”

Deal Book: “Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation who once argued that former regulators should be barred from joining the banks they oversaw, is joining the board of Banco Santander, the Spanish bank said on Monday.”

From her 2012 book, Bull by the Horns: “There should be a lifetime ban on regulators working for financial institutions they have regulated.”

The Senate confirmed Janet Yellen to head the Federal Reserve, “setting her up to take office Feb. 1 as one of the most powerful economic policy makers in the world,” the Wall Street Journal reports.

“Ms. Yellen, who will be the central bank’s first female chief in its 100-year history, was easily confirmed by the Democratic-controlled Senate. She is expected to be sworn into office Feb. 1 and lead the Fed’s policy meeting in March.”

Federal Reserve Chairman Ben Bernanke said “a willingness to resist political encroachment has been a key strength of the Fed during its first century as the U.S. central bank,” Bloomberg reports.

Said Bernanke: “One value that strikes me as having been at least as important as any other has been the Federal Reserve’s willingness, during its finest hours, to stand up to political pressure and make tough but necessary decisions.”

[Read more…]

“The Obama administration, currently stumbling through the health care overhaul, has reached a critical stage in its other signature effort: reining in Wall Street,” the New York Times reports.

“The push to reshape financial oversight hinges on negotiations in the coming weeks over the so-called Volcker Rule, a regulation that strikes at the heart of Wall Street risk-taking. The rule, which bans banks from trading for their own gain, has become synonymous with the Dodd-Frank overhaul law that Congress adopted after the financial crisis.”

Janet Yellen “breezed through questions about the financial crisis, the Fed’s stimulus efforts and banking regulation, as the Senate Banking Committee weighed her nomination to serve as future head of the Federal Reserve,” CNN Money reports.

Daily Beast: “The Senate remains a remarkably politicized place. Tea Party rogues like Ted Cruz of Texas and Mike Lee of Utah are gumming up the works. Republicans are filibustering Obama judicial nominees. And a grand bargain on taxes and spending remains elusive as ever. But at the Yellen hearing, the members of the Senate Banking Committee signaled that they essentially accept the status quo.”

Wonk Wire: The good news and bad news for Janet Yellen.

Sen. Rand Paul (R-KY) “is threatening to put a hold on the nomination of Janet Yellen to chair the Federal Reserve,” CNBC reports.

“Paul is insisting on a vote on his Fed transparency bill, and has informed Senate leadership of his intentions.”