25 Firms Could Threaten the Financial System

President Obama's financial team remains split over the administration's proposed Consumer Financial Protection Agency. Yesterday, Treasury Secretary Tim Geithner testified in support of the plan before the House Financial Services Committee, says the Washington Post. The plan would also give the Federal Reserve, "authority to regulate any financial institution whose size and complexity threaten the broader economy." That's not enough for Fed Chair Ben Bernanke, who, with FDIC chief Sheila Bair, came out against the plan to the same committee later that day. Geithner, pre-empting their dissent as a mere turf war, said, "I think it's perfectly reasonable and understandable that the institutions who have this authority ... are not enthusiastic about giving up that authority."

Bair was critical of the Fed being tabbed as the regulator of the "too big to fail," institutions, arguing that responsibility should fall to a regulatory council instead. The Post reports, "Bernanke said Friday that he thinks there are around 25 firms that could threaten the financial system, the first time he has attached a number." The plan is pleasing few right now, argues the paper, saying it, "faces opposition from the financial industry, Republicans and some centrist Democrats, as well as current banking regulators." The dissent is pleasing banking lobbyists, notes the New York Times.

Citigroup continues to remake itself, says the Wall Street Journal, appointing three directors with turnaround experience. Among them is former New York State Banking Superintendent Diana Taylor, longtime companion to New York City Mayor Michael Bloomberg. She joins "Timothy Collins, chief executive of investment firm Ripplewood Holdings LLC, who helped turn around a failed Japanese bank; and Robert Joss, a former Wells Fargo & Co. executive who overhauled an Australian bank and has been dean of Stanford University's business school for a decade." The move shores up CEO Vikram Pandit, and for the first time in a long time gives Citigroup, under Chairman Robert Parsons, board members who understand the financial system. Pandit will probably need the support as he prepares for a battle over a $100 million pay package for the head of one of his units, "Phibro LLC—a secretive operation, run from the site of a former Connecticut dairy farm, that occasionally accounts for a disproportionate chunk of Citigroup income."

Battery capacity and cost have long been the main hurdles in developing practical electric vehicles, which is why the Energy Department is handing out $2 billion in grants to companies purporting to do something about it, says the Washington Post. "Now policymakers hope that helping domestic battery manufacturers will produce economic savings that often come with large-scale production and which are needed to make electric cars affordable. With funds provided by the stimulus bill in February, the Energy Department can cover up to half the cost of a battery-related project." The grant has drawn the usual anti-subsidy rhetoric from conservative policy groups but also concerns that the focus on delicate lithium ion technology could be the wrong choice for cars—or a risky investment, given Asian companies' existing dominance in that technology.

Overseas, the British economy has contracted at a record pace, says the Post, "dashing recovery hopes there and heightening fears that Europe overall may lag the United States and Asia in pulling out of the global recession." The Journal reports that Vice President Joe Biden, meanwhile, believes that Russia's weak economy could force it to make, "some very difficult, calculated decisions. They have a shrinking population base, they have a withering economy, they have a banking sector and structure that is not likely to be able to withstand the next 15 years, they're in a situation where the world is changing before them and they're clinging to something in the past that is not sustainable."

Are the green shoots here yet? The Times cites the National Bureau of Economic Research, the, "official arbiter of American economic cycles," as saying the economy might bottom out in the next month or two. "There are caveats to the forecast, of course." And the whole thing could end up being a W-shaped recovery, "in which early gains are followed by weaker figures."