Senate Dilutes 'Buy American' Clause in Stimulus, OKs Tax Break for Homebuyers

Senate votes to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans, while softening a labor-backed 'Buy American' provision.
WASHINGTON -- The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan.

The Senate also softened a labor-backed "Buy American" provision in the bill that would require U.S.-made iron or steel be used in construction projects paid for by the stimulus package after Obama expressed concern the original language could trigger a trade war.

The change gives Mexico, Canada, the European Union and certain other major trading partners some comfort they would be exempted after a move by Sen. John McCain, R-Ariz., to delete the "Buy American" requirement failed, 31-65.

The tax break for homebuyers adds $19 billion to the bill and was approved without dissent. It came on a day in which Obama pushed back pointedly against Republican critics of the legislation even as he reached across party lines to consider a reduction in the spending it contains.

"Let's not make the perfect the enemy of the essential," Obama said as Senate Republicans stepped up their criticism of the bill's spending and pressed for additional tax cuts and relief for homeowners. He warned that failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession."

Democratic leaders have pledged to have legislation ready for Obama's signature by the end of next week.
While they concede privately they will have to accept some spending reductions along the way, conservative Republicans failed in their initial attempts to force deep cuts in the bill.

Democrats also preserved a key priority for Obama, a break of up to $1,000 for couples who pay payroll taxes but whose earnings are so low they do not pay income tax.

Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.

The proposal would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers.

Isakson's office said the proposal would cost the government an estimated $19 billion.

Democrats readily agreed to the proposal, although it may be changed or even deleted as the stimulus measure makes its way through Congress over the next 10 days or so.

Other GOP attempts to change the measure went down to defeat. The most sweeping of them, by Sen. Jim DeMint, R-S.C., failed on a mostly party-line vote of 36-61. It would have replaced the White House-backed legislation with a series of tax cuts on personal and business income and capital gains at the same time it made cuts passed during the Bush administration permanent.

"This bill needs to be cut down," Republican Mitch McConnell of Kentucky said on the Senate floor. He cited $524 million for a State Department program that he said envisions creating 388 jobs. "That comes to $1.35 million per job," he added.

After days of absorbing rhetorical attacks, Obama and Senate Democrats mounted a counteroffensive against Republicans who say tax cuts alone can cure the economy.

Obama said the criticisms he has heard "echo the very same failed economic theories that led us into this crisis in the first place, the notion that tax cuts alone will solve all our problems."

"I reject those theories and so did the American people when they went to the polls in November and voted resoundingly for change," said the president, who was elected with an Electoral College landslide last fall and enjoys high public approval ratings at the outset of his term.

Obama did not mention any Republicans by name, and most have signaled their support for varying amounts of new spending.

Even so, the president repeated his retort word for word in late afternoon, yet softened the partisan impact of his comments by meeting at the White House with senators often willing to cross party lines.

His first visitor was Sen. Olympia Snowe, R-Maine, a moderate GOP lawmaker. Later he met with Sens. Susan Collins, R-Maine, and Ben Nelson, D-Neb.

"I gave him a list of provisions" for possible deletion from the bill, Collins told reporters outside the White House. Among them were $8 billion to upgrade facilities and information technology at the State Department and funds for combatting a possible outbreak of pandemic flu and promoting cyber-security. The latter two items, she said, are "near and dear to her," but belong in routine legislation and not an economic stimulus measure.

Collins and Nelson have been working on a list of possible spending cuts totaling roughly $50 billion, although they have yet to make details public.

The Associated Press contributed to this story.

Senators to Question Regulators on Madoff Case

Multibillion-dollar pyramid scheme allegedly spawned by disgraced investor Bernard Madoff is being probed by a Senate panel and will question federal regulators today.

WASHINGTON, Jan 27 A multibillion-dollar pyramid scheme allegedly spawned by disgraced investor Bernard Madoff is being probed by a Senate panel that will, for the first time, question federal regulators responsible for inspecting investment firms and enforcing action against violations.

The Securities and Exchange Commission has faced heavy criticism over its failure to discover the $50 billion Ponzi scheme allegedly run by Madoff, the prominent Wall Street figure and money manager now fallen into disgrace -- despite credible allegations against him that were brought to the agency over the course of a decade. Against the backdrop of the worst financial crisis since the 1930s, the SEC also is accused of contributing to that disaster with lax oversight of Wall Street and the markets, and lawmakers of both parties are calling for a shake-up of the agency to help restore investor confidence.

The Senate Banking Committee was to take testimony at a hearing Tuesday from SEC Enforcement Director Linda Thomsen and the director of the agency's inspections office, Lori Richards. Also to appear before the panel was Stephen Luparello, the interim chief executive of the Financial Industry Regulatory Authority, the securities industry's self-policing organization.

Sen. Christopher Dodd, D-Conn., the banking panel's chairman, recently asked Mary Schapiro -- President Barack Obama's newly confirmed chairman of the SEC -- about the failure of the industry regulatory agency to detect the alleged Madoff fraud in its inspections of his brokerage operation. Schapiro, who has led FINRA as its CEO since 2006, said that the matter went undiscovered because the scheme was carried out through Madoff's investment business and FINRA was empowered to inspect only the brokerage operation.
After acknowledging last month that staff members at the SEC repeatedly had failed since at least 1999 to fully investigate Madoff's operations, then-SEC Chairman Christopher Cox ordered the agency's inspector general, H. David Kotz, to determine what went wrong. Kotz told a House hearing recently that he was expanding the inquiry to examine the operations of the divisions led by Thomsen, who has been the enforcement chief since mid-2005, and Richards, who has held that position since mid-1995.

Among other facets, Kotz has been examining the relationship between a former SEC attorney, Eric Swanson, and Madoff's niece, Shana, who are now married. As an SEC attorney, Swanson was part of a team that examined Madoff's brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff, a former chairman of the Nasdaq Stock Market who was a member of SEC advisory committees.

Lawmakers say Madoff's alleged fraud, which caused massive damage to investors large and small around the world and may be the largest pyramid scam in history, reflects deep, systemic problems at the SEC.
The Banking Committee is examining the case "to determine how so many people could have been deceived and how such a massive fraud could have gone undetected for so long," Dodd said in a statement recently. "American investors deserve an explanation and the responsible parties must be held accountable. I am hopeful that our findings will also help inform our efforts to improve regulation so that such abuses do not occur in the future."

The committee has requested an extensive array of documents related to Madoff from the SEC.
Six weeks after Madoff's arrest in New York, thousands of victims who lost money investing with him have been identified -- including ordinary people and Hollywood celebrities -- as well as big hedge funds, international banks and charities in the U.S., Europe and Asia.

In Brussels, Belgium, on Monday, the European Union said it will check investor protection rules in all 27 member nations after France complained of lax standards that saw French investors lose billions of euros in the scandal. The review should clarify how far European funds could be held responsible for placing client money with Madoff -- and whether they could be ordered to compensate investors.

FINRA recently sent letters to its approximately 5,100 member brokerage firms asking whether they referred any customers to Madoff's firm.

Also slated to testify at Tuesday's hearing was Stephen Harbeck, president of the Securities Investor Protection Corp., an industry-funded organization that steps in when a brokerage firm fails. The group can provide up to $500,000 for each customer of the failed firm.

The estimated $50 billion in losses from Madoff dwarfs the $1.6 billion currently available to SIPC.

Obama team report says there was no dealing with Blagojevich over Senate seat

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Stephen J. Carrera / Associated Press

Illinois Gov. Rod Blagojevich, at left, and President-elect Obama's incoming chief of staff, Rahm Emanuel, have worked together previously in Illinois politics as this 2003 file photo shows. A report released today by the Obama team found no evidence of improper contact between Emanuel and Blagojevich.

It says the president-elect had no contact with the Illinois governor and that Rahm Emanuel spoke with him, but not about a quid pro quo. Obama, Emanuel and Jarrett were interviewed in the inquiry.

By Jill Zuckman and John McCormick
December 24, 2008

Reporting from Washington and Kailua, Hawaii -- Barack Obama's White House transition team released a report Tuesday that concluded the president-elect had no contact with Illinois Gov. Rod R. Blagojevich or his office and that no one acting on Obama's behalf was involved in any quid pro quo allegedly sought by the governor to fill Obama's vacant Senate seat.

Incoming White House counsel Gregory Craig said that Obama; his chief of staff, Rahm Emanuel; and advisor Valerie Jarrett all submitted to interviews with U.S. Atty. Patrick J. Fitzgerald last week as part of an ongoing criminal investigation of Blagojevich.

 

Emanuel was the only member of the transition team who had direct conversations with the governor about possible candidates for the Illinois Senate seat, said Craig, adding that there was no deal-making. The attorney also said that neither Jarrett nor David Axelrod, another senior Obama advisor, had any contact with Blagojevich or his office.

Craig put the report together after Blagojevich's Dec. 9 arrest on allegations of engaging in a scheme to sell the vacant U.S. Senate seat, as well as other state appointments and services. It is the first major controversy confronting the incoming administration -- and one that caused the transition team to respond tentatively until Tuesday.

The report said that Illinois Deputy Gov. Louanner Peters approached Eric Whitaker, a close friend of Obama's, in search of information about "who, if anyone, had the authority to speak for the president-elect," and that Emanuel had "one or two" telephone conversations with Blagojevich.

"They spoke about Mr. Emanuel's House seat, when he would be resigning and potential candidates to replace him. He also had a brief discussion with the governor about the Senate seat and the merits of various people whom the governor might consider," the report said. "Mr. Emanuel and the governor did not discuss a Cabinet position . . . a private-sector position for the governor or any other personal benefit for the governor."

In a conference call with reporters, Craig characterized Emanuel's conversations with Blagojevich as innocent and appropriate. Emanuel, who is on a family vacation in Africa, was unavailable for comment Tuesday. Fitzgerald previously has said that neither Obama nor his aides were targets of the federal investigation.

Still, Craig's report did not include transcripts of any of the conversations Emanuel had with Blagojevich or with the governor's chief of staff at the time, John Harris. Those conversations were recorded as part of the federal inquiry. Craig did not respond when asked whether he had tried to obtain the transcripts.

During Emanuel's meeting with Fitzgerald last week, he listened to the recordings of his conversations, said Robert Gibbs, incoming White House press secretary. Craig said the Emanuel calls to Harris included a discussion of the "merits and the strategic benefit" that each candidate would bring to the Senate seat.

Obama has portrayed himself as taking a hands-off approach to the governor's decision about whom to appoint to his former Senate seat. But the report noted that he was very much interested in who would succeed him.

Once Jarrett said she was not interested in becoming a senator, Obama asked Emanuel to tell the governor that he would like him to consider Rep. Jan Schakowsky, Rep. Jesse L. Jackson Jr., Illinois Comptroller Dan Hynes and Tammy Duckworth, director of the Illinois Department of Veterans Affairs -- all of them Democrats.

Later calls between Emanuel and Harris included the addition of two names to Obama's list of suggestions: Illinois Atty. Gen. Lisa Madigan and Cheryle Jackson, president and chief executive of the Chicago Urban League and a former Blagojevich spokeswoman.

The report took pains to point out in several places that none of Obama's senior advisors ever believed that the governor was seeking some sort of benefit for the Senate appointment. It said that Tom Balanoff, head of the Illinois chapter of the Service Employees International Union, told Jarrett that the governor had said he hoped to become secretary of Health and Human Services in the Obama administration.

Balanoff told Jarrett that he told Blagojevich "it would never happen," and the report said Jarrett agreed with that assessment.

"Mr. Balanoff did not suggest that the governor, in talking about HHS, was linking a position for himself in the Obama Cabinet to the selection of the president-elect's successor in the Senate, and Ms. Jarrett did not understand the conversation to suggest that the governor wanted the Cabinet seat as a quid pro quo for selecting any specific candidate to be the president-elect's replacement," the report said.

Craig told reporters that Jarrett thought Blagojevich's hopes of joining the Cabinet were "ridiculous," especially because he was widely known to be under investigation long before his arrest.

Obama, who is vacationing in Hawaii, instructed his staff this month to review all internal contacts with Blagojevich and his office. He said he was eager to release the report, but was asked to delay doing so by federal prosecutors.

"It's a little bit frustrating," Obama said last week. "There's been a lot of speculation in the press that I would love to correct immediately. . . . By next week, you guys will have the answers to all your questions."

Still, because the report did not include actual transcripts of what was said, questions may linger.

Obama ordered the report after Blagojevich and Harris were arrested on charges that they had tried to barter the Senate seat for the governor's professional benefit or financial gain. Illinois law grants the governor sole power to fill a Senate vacancy.

On Dec. 15, Obama said the report was complete and that no "inappropriate" contact between his aides and the Blagojevich camp had been found. He said then that its release was being delayed until this week at U.S. Atty. Fitzgerald's request.

When asked about the Senate seat shortly after the election, Obama said: "There's going to be a lot of good choices out there, but it is the governor's decision to make, not mine."

Since then, the president-elect has declined to comment on whether there is any inconsistency with that statement and a recent Chicago Tribune report that suggested Emanuel had presented a list of acceptable candidates to the Blagojevich administration.

jzuckman@tribune.com

mccormickj@tribune.com