OVERNIGHT MONEY: Geithner to be grilled on Libor scandal

WEDNESDAY’S BIG STORY:

Let’s chat: Treasury Secretary Timothy Geithner heads to Capitol Hill on Wednesday with plenty to talk about. 

Geithner will be paying a visit to the House Financial Services Committee to deliver the annual report of the Financial Stability Oversight Council (FSOC). That panel, which brings together all the top financial regulators under one roof, has a handful of big Dodd-Frank responsibilities, including identifying what firms qualify as “systemically significant” and merit heightened regulations for the good of the financial system.

{mosads}Geithner also will be fielding questions from lawmakers on the range of usual Dodd-Frank conversation starters: the Volcker Rule, derivatives regulations, and other ways regulators are working to make the financial system safer — or burdening the economy with heaps of regulations, depending on who you ask.

And if that weren’t enough, he’ll also likely be pressed by lawmakers on what regulators knew years ago about potential fixing of the London Interbank Offered Rate (Libor). An probe into whether that benchmark interest rate was being manipulated by the banks setting it has roped in the Federal Reserve.

The New York Fed revealed earlier this month that it first heard rumblings of problems with the rate several years ago when Geithner was president of the regional bank. Geithner and the Fed have said they referred the info to the appropriate regulators as soon as they heard. 

Still, expect him to be pressed further by inquiring lawmakers.

WHAT ELSE TO WATCH FOR 

Here we go: The Senate is scheduled to bring the pre-recess, pre-election battle over tax policy to the chamber floor on Wednesday, with a scheduled procedural vote on the Democratic plan that would extend Bush-era tax rates for a year on those with annual family income up to $250,000.

For right now, the Democratic proposal, which would also raise top rates on capital gains and dividends, will need 60 votes to clear the procedural hurdle.

But Democrats say they have offered Republicans up-or-down majority votes on both sides’ plans — so far, for naught. 

Sens. Joe Lieberman (I-Conn.) and Jim Webb (D-Va.) have signaled that they will not back the Democratic plan. 

But Reid’s caucus has 53 members, and Sen. Joe Manchin (D-W.Va.), who voted against a plan with the $250,000 threshold in 2010, announced Tuesday that he would back the package. 

For their part, Republicans have said they want a vote not only on their plan to extend all Bush-era rates but also a plan that dovetails more closely to President Obama’s proposals. The White House, for instance, has called for a higher top rate on dividends than Senate Democrats

And on the other side of the Capitol, House Republicans rolled out their plan that would extend all the Bush-era rates for a year and set the stage for tax reform in 2013. 

It all amounts to lots of sound and fury. But few, if any, expect the discussion over the Bush tax rates to be finished before the lame-duck session of Congress.

Vice President Biden acknowledged as much on Tuesday in discussing a new White House report that found that 114 million middle-class families would be affected if Congress doesn’t act on taxes by the end of the  year.

“I think we’re going to run into some real procedural challenges up on the Hill, but that’s another issue,” Biden told reporters in a Tuesday conference call. 

“As usual, we’ll probably have a 60-vote threshold even to be able to get to it, but that’s being worked on now in the Senate.”

Dealing with derivatives: The House Agriculture Committee will devote a hearing on Wednesday to the integrity of the derivatives marketplace, following the meltdown of the futures broker PFGBest. The revelation that the company had for years been spending protected customer funds and deceiving regulators has thrown fresh doubt on that market, just months after another major collapse at MF Global. Commodity Futures Trading Commission Chairman Gary Gensler is set to testify along with other industry experts. 

Spending cuts: Two panels will be discussing the fate of the nation’s education system on Wednesday. The Senate Finance Committee will discuss tax reform in the context of education with a group of academics and tax experts, while a Senate Appropriations subcommittee will debate what effects of the sequester’s proposed spending cuts on education with headliner Education Secretary Arne Duncan. 

Farm bill: Talk is increasing among proponents of the stalled farm bill of using a drought relief bill to bypass the House floor. The drought bill extends disaster aid for farmers that expired last year and was introduced by the Iowa delegation on Monday. While House Agriculture Committee members still want a floor vote on their $957 billion farm bill, they are seeing that the disaster bill might provide an easier way to get to conference with the Senate.

The panel’s ranking member Collin Peterson (D-Minn.) said he is “still optimistic” about getting a farm bill done by Sept. 30, when current programs expire. He said he met with House Speaker John Boehner (R-Ohio) and that Boehner is sympathetic. 

“He is not the problem,” he said. “There may be other people in leadership who have a problem with the bill.”

Asked if Majority Leader Eric Cantor (R-Va.) is the problem, he said “I didn’t say that.”

Peterson said using the disaster bill would be easier, but he is confident the committee could beat back major amendments on its bill if it came to the floor.   

Exports to Africa: A Senate Foreign Relations subcommittee will talk about how increasing trade and investment in Africa will boost job creation in the United States. Among those testifying are Commerce Undersecretary of International Trade Francisco Sanchez, Elizabeth Littlefield, president and chief executive of the Overseas Private Investment Corporation and Fred Hochberg, chairman and president of the Export-Import Bank.

A look at public charities: A House Ways and Means subcommittee will discuss public charities and whether a new tax form is increasing compliance and transparency. The hearing will examine the rules governing profit-generating activities giving rise to unrelated business income tax with witnesses including Steven Miller, deputy commissioner for services and enforcement at the Internal Revenue Service and other tax experts. 

LOOSE CHANGE

Possible action: Federal Reserve officials could be moving closer to taking action to bolster the sagging economy. 

Since their policy meeting last month, there is no doubt that concern about the economy’s progress, or lack thereof, is a major concern. 

Russia trade: The House Ways and Means Committee announced on Tuesday that it will hold a 9:45 a.m. Thursday markup of a trade bill that would repeal the Cold War-era Jackson-Vanik provision and allow the United States to extend permanent normal trade relations to Russia, which will join the World Trade Organization on Aug. 22. 

ECONOMIC INDICATORS 

MBA Mortgage Index: The Mortgage Bankers Association releases its weekly report on mortgage application volume. 

New Home Sales: The Commerce Department releases its June report on new privately owned single-family houses sold and for sale. New home sales usually lag behind changing mortgage rates, which are at historic lows. They also tend to be stronger early in the business cycle when pent-up demand is strong, and they fade later in the cycle as the demand for housing is sated. 

BREAKING NEWS

Deficit booster: The nonpartisan Congressional Budget Office on Tuesday said repealing Obama’s healthcare reform would increase the deficit by $109 billion over 10 years. 

This is a new estimate in light of June’s Supreme Court ruling that upheld most of the law, and it is a smaller deficit increase than CBO previously had linked to the repeal. 

Just say no: Sen. Pat Toomey (R-Pa.) on Tuesday said the elimination of tax deductions he proposed last year during deficit negotiations should not be used to avert a $55 billion cut to military spending in 2013. 

“The changes in the deductions and other tax expenditures must be preserved for tax reform,” Toomey said. 

“I’m in favor of reprogramming the cuts, looking at other areas to do some of that, but I don’t think it’s a good idea to go into the tax code and start ratcheting down the value of the [tax] expenditures because then we won’t be nearly as able to generate the pro-growth tax reform that I think we need.”

WHAT YOU MIGHT HAVE MISSED

— Democrats warn Rep. Paul’s Fed bill will politicize monetary policy

— House advances drilling, regulatory freeze bills

— Kirk presses for congressional action on Russia trade bill

— Dems blast GOP for wanting to raise taxes on the middle class

— White House warns of $1,600 tax hike on 114M middle-class families

— McConnell calls Democrats’ tax plan political ‘messaging’

— Boehner: GOP working to address drought ASAP

— GOP mocks agency’s 1,000-page plan to simplify loan forms

— Conservative groups tell Boehner to bury farm bill

— Toomey ‘stunned’ that Dems would go over fiscal cliff

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