When the Obama administration proposed a new government agency solely devoted to protecting consumers who buy financial products, government officials knew they’d be facing opposition from Wall Street, banks and the financial services industry. But who knew that some of their most vocal opponents would come from the government itself?

That opposition became crystal clear when Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corporation Chief Sheila Bair and several other regulators showed up on Capitol Hill last Friday. Testifying before the House Financial Services Committee, they seemed more interested in protecting the powers of their own agencies than in making changes to the financial system.

First up at Friday's hearings, Treasury Secretary Tim Geithner reiterated the need for a Consumer Financial Protection Agency, saying the economic crisis shows that the current financial system “failed in its most basic responsibility” to supply credit and protect consumers. "I think it's very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do," Geithner told the committee. Hard to disagree with that assessment, considering the record number of home foreclosures, bad mortgage loans and rising credit card defaults in the past year.

The proposed CFPA would take over consumer protection powers currently spread throughout several government agencies, including the Fed, the FDIC, the Office of Thrift Supervision and the Office of the Comptroller of the Currency. That doesn't sit too well with the chiefs in charge of those organizations. Following Geithner’s testimony, Bernanke said consumer protection responsibilities should stay with the central bank, arguing that the Fed’s bank supervisory powers go hand in hand with consumer protection. John Bowman, acting director of the OTS, and John Dugan, head of the OCC, both said enforcement of consumer protection should remain within their agencies. While FDIC chair Sheila Bair endorsed the creation of the CFPA and said that the CFPA should be able to write new enforcement rules, Bair said that federal banking regulators such as the FDIC should retain authority to supervise insured institutions.

Geithner's response: "With great respect to the Chairman and other supervisors who are reluctant to do this, they are doing what they should, which is defend the traditional prerogatives of their agencies. I think frankly all arguments should be viewed through that prism."

It’s been a tough going for the CFPA this summer. House Financial Services Committee Chairman Barney Frank (D-Mass.) delayed plans to mark up the bill  to create the new agency until after Congress returns from its summer recess in September. Frank said he believes the CFPA bill has enough support to win approval but agreed to slow down to give the opposition a chance to weigh in. Meanwhile, Republicans have proposed an alternative that would strip the Fed of its regulatory role and abolish the OCC and the OTS. In their place would be a single regulator for depository institutions, which would include an office focused on consumer protections. Unlike the administration's plan, the GOP-envisioned regulator would have no authority over nonbank institutions, such as mortgage brokers.

All this has moved the CFPA off the fast-track that Barney Frank talked about just a few weeks ago and gives industry lobbyists more time to work on defeating the proposal for a consumer financial watchdog.

On Thursday morning, Warren Buffett said that a second stimulus package to help the economy might be called for. I'm not going to go into all the pros and cons of a second stimulus (you can read all about that here). But the metaphor that he used to break down the idea on Good Morning America was a little…how should we say it…odd. Buffett said, "Our first stimulus bill, it seemed to me, was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in as everybody was putting it into their own constituencies. It doesn’t have quite the wallop." (Credit to The Wall Street Journal's MarketBeat blog for picking this up.)

Viva Buffett!

In addition to Buffett's Viagra analogy, President Obama has fumbled over the definition of price/earnings ratios (fast-forward to about 1:50 into this clip):

And Treasury Secretary Geithner dumbed down his response to questions about the safety of the U.S. dollar and Treasury investments so much, that his audience of Chinese students broke out laughing:

I don't envy these guys. Trying to boil down an extremely complicated situation into a TV news bite is impossible. But I wonder what the Cialis folks think about Viagra getting all the attention?

There’s no doubt that Treasury Secretary Tim Geithner is a busy man these days. But he’s not too busy to get his own coffee.

Tim buys joe.

At 8:30 a.m. Monday — a half hour before he was scheduled to speak at the Time Warner Economic Summit — Geithner pulled up in a dark blue SUV around the corner from the Time Warner Center in midtown Manhattan. From inside a Starbucks across the way, I watched Geithner pop out of the back seat and walk briskly across 60th Street into the Starbucks, followed by two men (presumably his security detail). The line was at least ten people deep. But Geithner stood by himself in the queue with everyone else and focused on his BlackBerry until it was his turn to order and pay. If anyone recognized the Treasury Secretary, they didn’t make a fuss.

I wasn’t nosy enough to find out what Geithner likes for his morning caffeine fix, but when he showed up to be interviewed by Time magazine’s managing editor, Richard Stengel, Geithner was still clutching his cup o’ joe. The caffeine must have helped Geithner stay sharp as Stengel tried to get him to reveal details of the financial market reorganization plan that President Obama is unveiling on Wednesday. Saying he didn’t want to pre-empt the President’s speech on Wednesday or his own testimony before Congress on Thursday, Geithner wouldn’t discuss any details of the proposed changes, even though reports are already leaking out about reforms the administration would like to make.

But Geithner did say that the reorganization will focus on the core issues that lead to the financial markets meltdown, namely lack of oversight and basic gaps in consumer protections. When Stengel asked how the changes might better protect consumers, Geithner likened the financial market changes to the kind of reforms we saw a few weeks ago when Congress passed a major credit card bill eliminating some of the most egregious practices of card issuers. “Consumer credit was the focus of lots of bad practices — not just poor underwriting and poor disclosure but a fair amount of predatory behavior," said Geithner, "and we want to change that.”  Whether or not you believe that Geithner and the Obama administration's plans will really help consumers, it's heartening to hear it from a Treasury chief down-to-earth enough to get his own coffee.

- Donna Rosato

Treasury Secretary Tim Geithner is on Capitol Hill today, testifying before the  House Financial Services Committee. The headline news is how he's calling for establishment of a single  regulator to manage system-wide risk in the financial markets and regulate firms whose failure would be catastrophic for the economy.

But there's another part of his prepared testimony that's important: The promise to beef up consumer and investor protections:

The choice of what home mortgage to get or how to save for retirement are some of the most important financial decisions that households make. It is crucial that when households make choices we have clear rules of the road that prevent manipulation and abuse. We must restore integrity to our financial system and strengthen these protections. Consumer and investor protection is a critical component of the President’s regulatory reform plan. We are developing a strong, comprehensive plan for consumer and investor regulation to simplify financial decisions for households and to protect people from unfair and deceptive practices.

It's not a stretch to see, in hindsight, that a lot of financial products and services that ended up in the market over the past few years were the financial equivalent a loaded pistol in the hands of a two-year-old: People could do a lot of damage to themselves and their loved ones, and they had no understanding of the risks involved. Let's hope that the administration's consumer-protection proposals address the problem.

Of course, we could also use better, timelier enforcement of the powers that regulators already have. Here's a good example of that, plus what happens when people get sold something they don't understand: Yesterday came the news that the Financial Industry Regulatory Authority hit up Morgan Stanley for $7.2 million in fines and restitution to resolve charges that it failed to prevent two brokers from persuading employees of Xerox and Eastman Kodak to take early retirement based on unrealistic promises of investment returns and unsuitable investment strategies. At least 184 Morgan Stanley customers in Rochester, New York, suffered financial hardships as a result, says FINRA. At least half of those have already settled with Morgan Stanley (the brokers and the brokerage firm, needless to say, neither admit nor deny FINRA's findings); FINRA has ordered Morgan Stanley, it appears, to pay restitution to 90 more.

Great, but I can't help noticing that the alleged improprieties at the brokerage finished up in 2003. Um, that's six years ago. I'm sure that a lot of these early-retirees could have used this money a lot earlier.