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What's Getting a Hearing This Week

The financial and economic crisis will get plenty of attention in Congress this week. On Tuesday, Elizabeth Warren, chair of the TARP Congressional Oversight Panel, will be appearing before the Joint Economic Committee to discuss the recent stress tests as well as TARP overall. Warren, a Democrat, has established herself as perhaps the most vocal critic of the Obama administration within the Beltway, at least when it comes to the financial sector. While many government officials would like to think that the financial crisis is past us - so they can move on to other pressing issues, like the worst recession in decades, a national health-care emergency, ballooning deficits, etc. - Warren probably likely be taking the administration to task for not doing enough to help ordinary homeowners and the middle class, who have not seen any particular benefits from the government's generous bailouts of large banks.

On Wednesday, the Senate Banking Committee will be discussing the government's recent interventions into the auto industry through the bankruptcies of Chrysler and General Motors.The administration is likely to come under attack for what many Republicans have denounced as unprecedented intervention in the private sector. The key questions will be whether the restructured Chrysler and GM will be able to become profitable, self-sustaining companies, and how long it will take. Although the administration has a fair chance of winning this round - getting its restructuring plans through - there is still considerable uncertainty about the long-term health of the auto manufacturers.

In addition to arguing about the recent bailouts, Congress is also warming up for the debates over financial regulation that will occupy much of the summer and fall. The powerful House Financial Services Committee will be holding hearings first on over-the-counter derivatives on Tuesday and then on compensation structures and systemic risk on Thursday. Derivatives regulation is a hot-button issue because of the major role that credit default swaps were widely seen to have played in amplifying the acute crisis last fall, and is certain to be addressed by multiple agencies and committees; the Senate Agriculture Committee already chimed in last week. Compensation structures in the financial sector, which paid people enormous bonuses in good years yet imposed no significant penalties in bad years, are also widely blamed for making the crisis possible. Although popular outrage has often focused on the absolute amount of financial-sector compensation, the key issue will be whether the right incentives can be put in place, for example by paying bonuses in company stock that cannot be sold for several years.

For more on financial regulation, also watch for new articles in our "Making Financial Regulation Work" series, which will appear throughout the summer.

By James Kwak  |  June 8, 2009; 8:30 AM ET
Categories:  The Week Ahead  
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