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Sam Pizzigati

By Sam Pizzigati
Editor, on line weekly Too Much

Wall Streeters made fortunes, the new official report on America’s 2008 economic meltdown charges, defrauding the American public. They’re still making fortunes — and this new official report is already sinking out of sight.

A quarter-century ago, in 1986, the biggest Wall Street banker paycheck went to John Gutfreund, the Salomon Brothers CEO. Gutfreund pulled in $3.2 million. Two decades later, in 2006, Merrill Lynch CEO Stanley O’Neal pocketed $91 million.

To understand the 2008 Wall Street meltdown that cratered the U.S. economy, suggests the new final report from the panel Congress appointed to probe the causes of that crater, you need to understand this enormous pay explosion — and the fierce incentive this explosion created for reckless and fraudulent behavior.

How reckless and fraudulent? In the years that led up to the 2008 meltdown, the Financial Crisis Inquiry Commission report released late last month details, Wall Street’s top bankers and financiers “made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective.”

These same bankers borrowed, based on these securities, tens of billions of dollars “that had to be renewed each and every night” and then traded these billions in totally unregulated, semi-secret, financial “derivative” gambles.

This frenetic financial folly would eventually leave four million homes lost to foreclosure and another four and a half million American families either ensnared in the foreclosure process or seriously behind on their mortgage payments. (more…)

Robert Borosage

By Robert L. Borosage
Co-Director of the Campaign for America’s Future

The administration has rolled out its financial reform plan, which the president accurately calls the “the boldest set of reforms in financial regulation in 75 years.”

Rep. Barney Frank, the chair of the House Banking Committee, promises to act rapidly, hoping to pass reforms by the end of the year. Best to move now while the banks are weak, goes the argument, than try to take them on when they are back on their feet.

The banking lobby has reacted like wasps whose hive has been hit by a stick, swarming out to fend off the threat. First target of their sting is the proposed Consumer Financial Protection Agency, designed to defend consumers from the serial abuses of credit card companies, payday lenders, mortgage brokers and the like. Ed Yingling, president of the American Bankers Association, decries even the idea of the agency, saying banks are “dumbfounded” by its scope, suggesting that it would “blow up the system”

This assault on the consumer agency reveals how much the banking lobby has already won. Most notable about the administration’s plan is what was left out. Nothing real is done about compensation schemes. Exotic derivatives and credit default swaps are not banned. Rating agencies are still paid by the financial houses they are supposed to rate. Banks too big to fail are to be monitored, not broken up. Oversight of the system is entrusted to the Federal Reserve, which was designed to insulate money center banks from the democracy. No mention is made of a tax on securities transactions that would both put a damper on excessive speculation and raise a ton of money to help repay some of the staggering costs of the crisis the speculators caused.

Sadly, the whole notion of urgency is based on the false assumption that the banks are weak since they are on the public dole. But, as we’ve seen over the past months, the banks, even on life support, have big time clout in Washington. They blocked the effort to give bankruptcy judges the right to renegotiate mortgages of distressed families. They torpedoed legislation to put a lid on credit card interest rates. “It’s hard to believe,” Senator Dick Durbin said in frustration, but the banks are “still the most powerful lobby on Capitol Hill. And they frankly own the place.”

So what can alter the balance of forces in Washington?

We have one lesson from history: the Pecora Commission in the New Deal. Ferdinand Pecora, the fearless chief counsel of the Senate Banking Committee, led hearings that dragged the barons of Wall Street before a riveted public, exposing their insider dealings, their ponzi schemes, and their excesses. By the time he was done, Time Magazine was calling them banksters, the public was demanding reform, and Congress located its backbone and enacted the Securities Exchange Act, the Glass Steagall Act and much more. (For a good summary see Kate Phillips piece here).

These real reforms helped the US escape the cycle of financial crises that previously had convulsed the economy about every ten years. It was only when these protections were dismantled from Reagan on that the bankers once more became “masters of the universe,” and replayed the sorry saga of casino and crash.

Modern day Pecora hearings are waiting to happen. Led by Speaker Nancy Pelosi, the Congress passed legislation setting up a Financial Crisis Commission with subpoena power and the mandate to probe and exposed the roots of the current crisis. Senate leader Harry Reid and Pelosi each have the power to name three commissioners, with the Republican leaders of the House and Senate naming two each. Pelosi and Reid name the chair.

With strong and independent leadership — say if it were chaired by Elizabeth Warren, the brilliant Harvard Law Professor who has chaired the Congressional Accountability Panel that helped expose the follies of the bank bailout — the Commission could transform the debate in Washington.

It could hold hearings in the epicenters of the housing crisis, exposing the systematic fraud practiced by lenders like Countrywide and fostered by the banks that bought up the mortgages. It could expose how the banks and rating agencies colluded to transform garbage NINJA (no income, no job, no assets) mortgages into triple A securities. It could subpoena the barons to show how they profited personally and turned their eyes as the banks took ever greater risks, gambling with ever higher levels of borrowed money. It could make the case for adult supervision.

Americans are eager for this. Pollster Celinda Lake found that 71 percent of voters want Congress to hold investigations into the “events leading up to the Wall Street financial crisis.” We want to know who caused this mess, who made out like bandits, who brought down the house. Public hearings would gain national attention. Leads winnowed out by the Commission would be pursued by muckrakers and bloggers. Congressional committees would be stirred from their lethargy. Time magazine would start talking about banksters again. Then real reform might be possible.

It is now up to Pelosi and Reid. The law was passed weeks ago. They have the power. They can choose to name aggressive and independent commissioners or to turn the commission into a pro forma review that creates a report for the shelves a year from now.

The banking lobby is no doubt pushing hard to neuter the commission. And here we see another cost of the Geithner decision to subsidize the banks rather than reorganize them. If his plan fails, we’ll be like Japan with the recovery burdened by zombie plans. If the plan works, we’ll end up with the banks “too big to fail.” And while we’re deciding whether it works or not – as we are now — there’s immense pressure not to “undermine confidence.” The banks are given stress tests and allowed to pass by cooking their books (not marking their toxic assets to market). The Treasury Secretary announces that they are “healing.” They trumpet independence by repaying billions to the Treasury, even while they are still mainlining a range of subsidies from Federal Reserve. That same pressure makes Geithner and Summers unlikely allies of a strong, independent and public investigation (to say nothing of Summers’ involvement in the deregulatory follies of the 1990s).

But Reid and Pelosi have a significant stake in creating a hard-hitting commission. Politically, Democrats need to hold the Wall Street barons accountable, not just bail them out. Americans are furious at the hundreds of billions that are going to save the richest people in America while workers lose their jobs. As the party of “no,” Republicans are being taught by Newt Gingrich on how to disingenuously disavow any responsibility and posture as fake populists. Democrats need to show that they are not in the pocket of the Wall Street.

Moreover, this isn’t just about politics. Fundamental financial reform is essential to the future of the economy and the country. President Obama is correct when he says we can’t go back to an economy where finance captures 40% of the profits of the country. He’s right when he condemns a culture of “arrogance and greed” that can’t be tolerated.

If we don’t get comprehensive reforms now, we’ll have created an even greater peril — banks and hedge funds officially recognized as too big to fail, assuming that they can pocket their winnings and the public will cover their losses. That is a recipe for another crackup a few years from now, as avarice once more clouds memory.

Will we get a modern day Pecora? Harry Reid and Nancy Pelosi have the power. They could appoint truly independent commissioners, give them the budget to gear up, and the mandate to tell the people. It’s time for them to step up.

Robert Kuttner

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

In 1932 through 1934 the Senate Banking Committee, led by its Chief Counsel Ferdinand Pecora, ferreted out the deeper fraud and corruption that led to the Crash of 1929 and the Great Depression. The Pecora Committee’s findings helped change the political mood, and laid the groundwork for the sweeping financial reforms of Roosevelt’s New Deal. Roosevelt himself often conferred with Pecora, encouraged him, and depended on Pecora’s work to build the public support for reform. He appointed Pecora to one of the newly created results of his handiwork, the Securities and Exchange Commission, though Pecora was disappointed not to be its chairman.

President Obama has now signed legislation, The Fraud Enforcement and Recovery Act of 2009, which among other things creates an investigative commission inspired by Pecora.

The new Financial Markets Commission has a sweeping mandate, including subpoena powers, to investigate all the causes of the collapse. The list is as comprehensive as one could wish for.

FUNCTIONS OF THE COMMISSION.–The functions of the Commission are–

(1) to examine the causes of the current financial and economic crisis in the United States, specifically the role of–

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;

(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;

(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;

(D) monetary policy and the availability and terms of credit;

(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;

(F) tax treatment of financial products and investments;

(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;

(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;

(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;

(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;

(K) the concept that certain institutions are ”too-big-to-fail” and its impact on market expectations;

(L) corporate governance, including the impact of company conversions from partnerships to corporations;

(M) compensation structures;

(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;

(O) the legal and regulatory structure of the United States housing market;

(P) derivatives and unregulated financial products and practices, including credit default swaps;

(Q) short-selling;

(R) financial institution reliance on numerical models, including risk models and credit ratings;

(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;

(T) the legal and regulatory structure governing investor and mortgagor protection;

(U) financial institutions and government-sponsored enterprises; and

(V) the quality of due diligence undertaken by financial institutions;

(2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;

It’s hard to improve on that. Whether the commission carries out this mandate, Pecora-style, will depend entirely on who its chair and members are, and whether they hire a tough staff. The ten commission members are to be appointed, three by the Speaker of the House, three by the Senate Majority Leader, and two each by their Republican counterparts. The Staff Director is to be hired jointly by the Chair (a Democrat) and the Vice-Chair (a Republican). Interestingly, none are to be appointed by the White House, and President Obama has already issued a signing statement reserving the right to invoke executive privilege in cases where materials or testimony from the executive branch are requested under subpoena.

To get a flavor of what the original Pecora Committee did, consider this observation from Donald A. Ritchie, associate senate historian, in his study, “The Pecora Wall Street Expose”"

With the power of the subpoena, his staff would descend upon a banker or broker, and go through is records, file drawer by file drawer, page by page, selecting and photostating documents. Staff lawyers and accountants would assemble this material to reconstruct motivations, discrepancies, delinquencies, and frauds involved. They drew a multitude of charts, tracing every event and statistic. After narrowing down the documentation, they outlined the subject’s transactions in chronological narrative on letter-sized sheets with citations in the margins to specific documents which could prove each assertion.

Will the new Financial Markets Commission be this diligent in exposing the facts and kindling public demands for sweeping reform? You can be sure that House Speaker Pelosi and Senate Majority Leader Harry Reid will be getting friendly calls urging them not to make appointments that will embarrass the administration.

Three names have surfaced in the financial press as possible chairs, supposedly based on leaks from the Democratic leadership: Paul Volcker, 81, the former Fed Chairman, Arthur Levitt, Jr., 78, SEC Chairman during the Clinton era, and retired Supreme Court Justice Sandra Day O’Connor, 79. Volcker, an honest conservative, has turned against financial deregulation in recent years, and Levitt was a reasonably tough SEC chair, who bucked (and sometimes buckled) in the face of intense Congressional pressure from both parties not to crack down on abuses. Levitt now advises one of the most powerful private equity companies, the Carlyle Group, not exactly a constituency for tough reform.

Here are two better names:

*Paul Sarbanes, the retired Senate Banking Committee chairman. Sarbanes, a well-liked senator with admirers in both parties was both highly expert, incorruptable, and tough. In the fight to get what became the Sarbanes-Oxley Act, cracking down on accounting fraud, he showed real leadership. Sarbanes, now a vigorous 76, stepped down in 2006.

*Harvey Goldschmid, probably the most expert and public-minded SEC commissioner in recent decades. Goldschmid, 69, is now a law professor at Columbia. He was seriously considered by President Obama to chair the SEC, but was passed over in favor of the somewhat weaker Mary Schapiro.

It is important that this investigation be conducted not by a figurehead, but by one with the knowledge, passion, and predisposition to build the public case for sweeping reform, and without fear or favor.

Some Republicans, such as Richard Shelby, the ranking minority member on the Senate Banking Committee, are as disgusted with the Wall Street corruption as progressive Democrats are, though that does not describe the minority leaders in either house, Sen. Mitch McConnell and Rep. John Boehner, who will make the Republican appointments.

This could be one of those rare, historic commissions that changes the course of history — or it could be window-dressing. Stay tuned.

******

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos www.demos.org. His recent book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”

Robert Kuttner

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

We are hearing a lot about the need for a new “Pecora Commission,” to conduct a comprehensive investigation of all the Wall Street abuses that led to the financial collapse and the general recession that has followed. House Speaker Nancy Pelosi has called for such a commission. A House floor vote on a bill sponsored by Rep. John Dingell is expected this week. The bill would establish an investigative panel with full subpoena powers. A companion bill, the Fraud Enforcement and Recovery Act, has bipartisan Senate sponsors, including Senators McCain and Grassley as well as several progressive Democrats. These efforts are an implicit rebuke to the Obama administration’s economic team.

The original Pecora committee was not a commission, but the Senate Banking committee operating in investigative mode. Its chief counsel beginning in late 1932 was a former New York City prosecutor named Ferdinand Pecora. The committee began its work in March 1932, and Pecora became chief counsel later that year. It continued throughout 1933 into early 1934. The new Democratic chairman, Sen. Duncan Fletcher, who took office when the Democrats began the majority party after the 1932 election, kept Pecora in the job. Today, Fletcher is a footnote; Pecora is the name people remember. (As a former chief investigator of the Senate Banking Committee, I love to see Senate staffers make good.)

Pecora’s work unearthed numerous conflicts of interest–a “preferred list” of investors (including President Coolidge and Supreme Court Justice Owen Roberts) kept by Morgan who had access to lucrative securities offerings not available to ordinary customers; the unsavory practice of bank presidents of borrowing money to short stocks, including sometimes their own; and the first wave “securitization,” in which investment banks made sketchy loans and repackaged them as bonds for unsuspecting investors.

Pecora’s work led to several resignations of bank executives, but more importantly in created a climate for reform legislation. Pecora’s findings helped inform the Glass Steagall Act of 1933 separating investment banking from government-insured commercial banking, the Securities Act of 1933 and the Securities Exchange Act of 1934. Most importantly, it functioned as a public shaming of Wall Street. It thus helped change the political climate so that radical reforms could proceed. President Roosevelt encouraged Pecora’s work and he encouraged the public indignation. Pecora was subsequently appointed by Roosevelt as a commissioner of the newly created SEC.

The Obama administration is proceeding very differently, and it has little enthusiasm for a Pecora Commission or for recriminations against financial elites. There has been no dramatic rupture with Wall Street. Rather, Obama’s economic team is working hand in glove with the same investment banking firms and commercial banks that invented and underwrote the financial products and subterfuges that creates the collapse.

Two of Obama’s top people, Lawrence Summers and Rahm Emanuel, did lucrative stints on Wall Street before returning to government (with an outlook substantially influenced by their time in the financial markets.) A third senior official, Treasury Secretary Tim Geithner, was a senior member of the Bush administrations financial crisis team, in his previous job as president of the Federal Reserve Bank of New York. So when Obama succeeded Bush, there was a seamless handoff from Geithner to…..Geithner.

Several other senior Obama economic officials were part of the Clinton economic team that was responsible for so much of the deregulation. Rather than channeling and affirming public indignation as Roosevelt did, the Obama sees populist backlash as a dangerous force to be damped down.

Although there have been some good individual hearings by particular committees on aspects of the collapse, neither of the key legislative committees in the House or Senate has shown much appetite for a Pecora-style investigation. Rather, investigative efforts have been diffused among the Congressional Oversight Panel chaired by Elizabeth Warren, which was created to oversee see the Treasury’s disbursement of $700 billion in bailout money, chaired by Elizabeth Warren; the reports of the Special Inspector General; investigative work by New York Attorney General Andrew Cuomo; and some good hearings by subcommittees. All of the Democratic committee chairmen, however, are under subtle pressure from the White House not to embarrass the administration.

But by refusing a Roosevelt-scale break with Wall Street, the administration embarrasses itself. So we need a new Pecora committee, less to unearth new information than to focus public attention and build support for sweeping reform. Between the work of the Special Inspector General, and the work of other congressional committees, and investigative reports of the financial press, much of the core story has already been unearthed. Commercial and investment banks, their hedge fund counterparties, the mortgage companies and the corrupted credit rating agencies, perpetrated systematic frauds on the public using levels of speculative borrowing that any uncompromised regulator would have shut down. The fraud was central to the business model. William Black has coined the useful phrase, “control fraud,” meaning that the fraud was systematic and emanated from the very top of the business.

With Larry Summers, Tim Geithner, and Ben Bernanke working closely with major investment bankers to restart the system of securitization, this time with the Federal Reserve’s money and loan guarantees from the Treasury, there will be a titanic struggle over what kind of regulatory system to have going forward. Wall Street is resisting any form of regulation of hedge funds and private equity companies, and hopes that a voluntary system for registering derivatives such as credit default swaps will head off stronger medicine.

For a time, it appeared that the issue of regulation of the shadow banking system would be finessed by making the Federal Reserve the “systemic risk regulator.” The Fed (the weakest regulatory agency of the lot) would decide what entities needed additional surveillance.) But that scheme, originally proposed by former Treasury Secretary Hank Paulson in 2006, no longer has much support in Congress. So all of the issues about what to regulate, how, and by whom, are still very much on the table–and a consensus still needs to be created. We need a latter day Pecora Committee to arouse the public and the back-benchers in Congress. Otherwise, the reform moment will pass, and we will revert to something very much like business as usual.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”

Robert Borosage

By Robert L. Borosage
Co-Director Campaign for America’s Future

Treasury Secretary Tim Geithner has called for “sweeping regulation” of the financial community, beginning a discussion of how we restructure the banking system — in and out of the shadows — as we emerge from what Robert Kuttner calls the Great Collapse. Literally trillions have already been committed in loans, guarantees, swaps, direct equity to stave off a complete financial collapse, even as the real economy declines.

But before we decide on the salvation, we need a public probe of the fall. What caused the Great Collapse? We need a grand inquest — either a special congressional committee or an independent commission like the 9/11 Commission armed with subpoena power — to expose misbegotten policies, malpractices, and mistaken ideas that allowed the wizards of Wall Street to transport us over the cliff.

In the 1930s, the dramatic hearings by the Senate Banking and Currency Committee became known as the Pecora Commission, after Ferdinand Pecora, the fierce former assistant prosecutor from New York who served as general counsel. Born in Sicily, the son of an immigrant cobbler, Pecora was a crusader. As counsel, he hauled the barons of Wall Street before the committee, and took them apart with often withering cross examination. By the time Pecora was done, the hearings had captivated the country’s attention and, as Ron Chernow reports, Senator Burton Wheeler of Montana was comparing the bankers to Al Capone and the public began calling them “banksters,” rhyming with gangsters.

The Senate committee unearthed the assorted frauds, the abuses, the ponzi schemes that led to the 1929 crash. And in doing so it provided both the case for reform and built a public demand in support of it.

The hearings came under fierce criticism. Wall Street bankers charged that they were “undermining confidence.” Some Senators scorned them as running a “circus,” and in fact, some of the excesses deserved the tag.

Yet, Pecora was deadly serious. By the time the hearings ended in May 1934, they had generated 12,000 printed pages of testimony — providing the source that historians have mined ever since to fuel their descriptions of the era. And they paved the way for reform: the Securities Act of 1933, the Glass-Steagall Act of 1933, and the Securities Exchange Act of 1934. In recognition, Roosevelt named Pecora to be a commissioner of the new SEC.

We need the same fearless investigation now. As Elizabeth Warren, the brilliant head of the congressional oversight panel on the bank bailout has noted, no one has exposed the record of pervasive fraud and misdealing that was at the base of the housing bubble. Her panel doesn’t have subpoena power, and has no little difficulty getting documents from the Treasury. There have been scattered congressional hearings on different aspects of the folly, some quite good. But none have laid out a systematic record of what went wrong, hauling miscreants before the committee, using subpoena power to expose the extent of the malfeasance — for example, the extraordinary percentage of mortgages that revealed signs of fraud on the face of the loan, and yet were marketed as sound by ratings agencies, banks and hedge funds that never looked at the underlying documents.

A broad, public investigation is also vital to help provide citizens with a clear narrative of what went wrong. It will counter the pernicious efforts on the right to cook up the notion that a powerful poverty lobby created the crisis by forcing hapless banks to make loans to the unqualified because of the Community Reinvestment Act.

There are many reasons for Congress to duck an inquest. An honest inquiry will show that the de-regulatory follies took place under presidencies of both parties — Reagan, the two Bushes, but Clinton also. The inquest would undoubtedly embarrass some of the former Clinton appointees now at the center of the Obama economic team, like Lawrence Summers. Many of the legislators who voted for deregulation, including dismantling the Glass-Stegall Act, would, no doubt, prefer that the past remain in the mists.

But serious reform of the banks — and that restructuring that is vital — will take new laws, new authority, and most likely more money from the government. That will require public support that can only be engendered by a clear view of what went wrong, by a sense that the most extreme wrong-doers are being brought to justice. Exposing the regulatory failures, the legal changes, the ideological blindness, the institutional structures, and the compensation packages that propelled the reckless gambling that eventually brought down the house is vital if we are to understand what must be changed and can mandate change to it.

If the banks are revived without the inquest, then Congress will find it hard to drive the restructuring and re-regulation essential to a new, more balanced economy. This will take courage — and a modern day Ferdinand Pecora with the necessary fire in his stomach.

David Sirota

 

Author of “The Uprising: An Unauthorized Tour of the Populists Revolt”

When they write their retrospectives about the era that ended with the 2008 election, economic historians will undoubtedly credit George W. Bush with almost single-handedly moving the country to embrace extremist conservatism. It’s a simple storyline: Cowboy president drives bewildered American herd over laissez-faire cliff. What such reductionism will ignore, though, is what we must remember now: namely, that Congress also played a decisive role in the stampede.

As former House Republican leader Tom DeLay said, he and his colleagues deliberately started “every policy initiative from as far to the political right” as possible, so as to shift “the center farther to the right.” The formula emulated Franklin D. Roosevelt’s fabled admonishment to allies: “I agree with you, I want to do it, now make me do it.”

Of course, that triumph was the country’s loss, as Republican policies thrust the political center off a conservative precipice and America into an economic freefall. And as we plummet, we are desperately groping for a lifeline.

If we are lucky and we end up snagging one that saves us – a huge if – it will be one that is strong enough to snap the center back from the conservative brink. This super-durable bungee cord must have the force of law, meaning it will be woven by Democratic legislators now exerting as much pressure on President Obama’s left as congressional Republicans focused on President Bush’s right.

When, for instance, Obama hedged on his promise to revoke $226 billion worth of Bush’s upper-income tax cuts, House Speaker Nancy Pelosi, D-San Francisco, pushed him to fulfill the pledge and put the money into programs that better guarantee job creation.

When Obama initially offered up a stimulus bill filled with discredited business tax breaks, Democratic senators forced him to back off. Reps. David Obey, D-Wis., and Jim Oberstar, D-Minn., then argued that the president’s proposed infrastructure investments were too small to boost the economy. That led House Democrats to increase Obama’s spending targets.

As stimulus negotiations continued, Rep. John Conyers, D-Mich., tried to add provisions letting courts renegotiate banks’ primary-residence mortgages so as to prevent more foreclosures. It’s a commonsense proposal: Judges already have the power to renegotiate vacation-home mortgages, and the New York Federal Reserve Bank says existing bankruptcy laws are exacerbating the foreclosure crisis. While Obama opposed the initiative out of fear that banking industry opposition might slow the underlying stimulus bill, Conyers’ effort ultimately made the president commit to supporting the reforms in future legislation.

Then there was the progressive reaction to Obama’s demand for more financial bailout money. Turning a routine committee hearing into a modern-day incarnation of the Great Depression’s Pecora Commission, Rep. Alan Grayson, D-Fla., upbraided a Federal Reserve official for refusing to disclose which banks are receiving taxpayer dollars. The spectacle was one of many that whipped the House into passing a bill attaching strings to the funds. Obama responded by committing to enact some of the restrictions by fiat.

At once complementary and adversarial, this intragovernmental squabbling probably makes the conflict-averse Obama uncomfortable. But the “make him do it” dynamic could finally bring the center of Washington’s political debate closer to the progressive center of American public opinion. Even more important, it is precisely what will help the new president avert an economic disaster.

David Sirota is the best-selling author of the books “Hostile Takeover” (2006) and “The Uprising” (2008).