Stephen’s Posterous

Republican victories in New Jersey and Virginia governors' races last week have unnerved Democrats according to Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush.

Over the weekend, White House Senior Adviser David Axelrod tried to calm Democrats by telling NBC's Chuck Todd that next year's congressional elections will be nationalized.

Because they "will be a referendum on this White House," he said, voters will turn out for Mr. Obama. Mr. Todd summed up Mr. Axelrod's plans by saying, "It's almost like a page from the Bush playbook of 2002."

Mr. Rove appreciates the reference. Only two presidents have picked up seats in both houses of Congress for their party in their first midterm elections. One was FDR in 1934. The other was George W. Bush in 2002, whose party gained House seats and won back control of the Senate.

But those midterm elections might not be a favorable comparison for this White House. The congressional elections were nationalized seven years ago largely because national security was an overriding issue and Democrats put themselves on the wrong side of it by, among other things, by catering to Big Labor says Mr. Rove.

At the time, there was a bipartisan agreement to create the new Department of Homeland Security. Democrats insisted that every inch of the department be subject to collective bargaining. What Democrats wanted was shortsighted and dangerous.

Mr. Bush had a record of bipartisanship that included winning passage of the No Child Left Behind Act with the support of Democrats Sen. Ted Kennedy and Rep. George Miller. He also had a popular agenda of tax cuts, regulatory reform, and sound leadership in the wake of 9/11 that the GOP could run on. Mr. Obama lacks a comparable foundation.

The narrative Obama White House officials are writing about themselves is that they are uncompromising, ungracious, and ready to run roughshod over popular opinion. They have mastered the Chicago way of politics: reward friends, punish enemies, and jam the opposition. Voters have a tendency to quickly grow tired of pugnacious governance.

That's only the beginning of Mr. Axelrod's problems. If the 2010 midterms are nationalized, they will be a referendum on Mr. Obama's increasingly unpopular policies.

Mr. Obama is increasingly seen as governing from the left. The latest Gallup poll shows that 54% of Americans say the president's policies have been mostly liberal and only 34% say they are mostly moderate.

High unemployment and the president's low approval on jobs and the economy, which is at 46% in a CNN/Opinion Research poll released last week, won't by themselves sink Democrats. But what will hurt are the beliefs that Mr. Obama's $787 billion stimulus bill was a flop and that he doesn't know how to speed up the economic recovery.

Mr. Obama's approval on handling the deficit in the CNN/Opinion Research survey is now 39%. The president's plans to triple the deficit over the next decade is causing a level of angst among independents that we haven't seen since Ross Perot ran for president in the 1990s.

Democrats increasingly recognize their vulnerability. Of the 80 House Democrats whose districts were carried by Mr. Bush or John McCain, nine voted against the stimulus, 21 against a budget resolution that called for doubling the national debt in four years, 36 against cap and trade, and 36 against health care. Defections will grow.

Maybe the Obama inner sanctum realizes that its agenda is unpopular and will cost many Democrats their seats next year but calculates that enough will survive to keep the party in control of Congress. Perhaps they have decided that Mr. Obama's goal of turning America into a European-style social democracy is worth risking a voter revolt.

Many Democrats who will be on the ballot next year may come to a different conclusion. Nationalizing the elections over an unpopular agenda isn't likely to repeat Mr. Bush's feat of picking up congressional seats. It is, however, likely to lead to more Republican congressmen than are there now.

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Christopher Dodd, chairman of the Senate banking committee, has proposed a overhaul of the country’s regulatory architecture that would strip the powers from the Federal Reserve and create a single banking regulator.

The proposal to consolidate regulators faces strident opposition from the Fed, the Federal Deposit Insurance Corporation and smaller regulators.

Mr. Dodd said most institutions would benefit from a regulator that would provide "clarity, cut red tape and make it easier to compete," and banks would "no longer be able to shop for the weakest regulator."

The Senate draft legislation also creates an agency to oversee systemic risk, which could call for banks to be broken up if they threatened the entire financial system and impose tougher capital requirements.

Republicans declined to support the proposed legislation, with a proposed Consumer Financial Protection Agency, which Mr. Dodd said was vital to crack down on abusive selling of mortgages and credit cards.

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Ralph Cioffi and Matthew Tannin, two former Bear Stearns hedge-fund managers, were acquitted of securities fraud. They were accused of lying to investors by telling them that they were optimistic about their funds, while privately worrying about the funds.

The funds collapsed in 2007, prior to the mortgage crisis that later took Bear Stearns down. The acquittals are a setback for the U.S. attorney's office in Brooklyn, New York.

Many U.S. attorney's offices are investigating Wall Street for possible criminal wrongdoing that lead to the credit crisis and affected many large companies like Lehman Brothers, Fannie Mae, and AIG.

This case came down to this simple question: Were the two men misleading investors, or simply putting a positive spin on sagging returns?, writes The Wall Street Journal writers, Amir Efrati and Peter Lattman.

The Jurors in Brooklyn found there was no evidence beyond a reasonable doubt that the defendants had criminal intent and conspired to mislead their investors.

Messrs. Cioffi and Tannin were the first and only Wall Street executives to face criminal securities-fraud charges resulting from the crisis.

The two former hedgefund managers faced a maximum of 20 years in prison for each of the five fraud counts and five years on a conspiracy charge, if they had been convicted.

The government displayed supposed incriminating emails by Mr. Tannin in which he expressed his fear about the markets in 2007. Defense lawyers said the prosecutors were taking the emails out of context.

What the email showed was that Mr. Tannin also said the men could choose to make aggressive bets rather than close the funds, the lawyers argued. The Jurors believed the defense's narrative.

Cioffi and Tannin still face a civil-fraud lawsuit, which was brought alongside the criminal charges last year, by the Securities and Exchange Commission. John Nester, an SEC spokesman, said the agency expected to go forward with the litigation.

Someone commented on the article in the Wall Street Journal writing, "Great decision. Finally we can look beyond finding scapegoats and work towards rebuilding the financial institutions in this country."

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Google Inc. said it will purchase mobile advertising start-up AdMob Inc. for $750 million in stock.

The purchase shows how the search giant is becoming more creative in order to extend its dominance into Internet advertising to mobile phones.

AdMob sells ads across thousands of websites tailored for cellphones. It is one of the largest mobile-advertising start-ups, with its agreements with thousands of mobile publishers. J.P. Morgan Monday estimated the company has between $45 million and $60 million in annual revenue.

The deal comes as Google's dominance of the search-ad market and forays into new markets have drawn more regulatory attention.

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Below is the full text of the statement by U.S. Treasury Secretary Tim Geithner at the G-20 meeting of finance ministers and central bank governors:

I want to start with the state of the global economic recovery.

Yesterday’s jobs numbers in the United States reinforced that this is still a very tough economic environment. The pace of job losses has slowed sharply, but unemployment is very high and still rising. Millions of Americans are out of work, or working less than they would like. The crisis caused enormous damage, and that damage has left consumers and businesses still cautious and tentative about the future.

We need a period of sustained economic growth to bring the unemployment rate down.

And that process of growth is now beginning. The U.S. economy and the global economy are growing again. Businesses are starting to invest. And consumers are spending. Business and consumer confidence has improved. Global trade is expanding at an encouraging pace.

As the crisis has receded, the value of savings around the world has risen. The cost of credit has fallen. Confidence in the stability of the financial system has been reestablished. These improvements have been more rapid and more broad-based than many anticipated.

At the start of this year, the world was confronting the very real risk of a great depression, global deflation, and financial collapse. Now, the forceful policy response of governments and central banks around the world has put out most of the financial fire and restarted growth in private activity.

Banks in the United States are repaying the government’s investments with interest. We have wound down the broad-based guarantees and large scale capital programs for banks that were essential to break the financial panic of last fall.

The consensus of private forecasts now anticipates global growth in the range of three percent next year.

With growth now underway and the financial fires winding down, the policy challenge is changing.

The first stage was the emergency rescue, providing tax cuts to boost personal and business income and public investments to help offset the fall in private demand.

The next stage is about catalyzing private demand and business investment. This will require continued policy support.

This is why the recovery programs put in place in the United States and around the world were designed to provide support for growth over a two year period, and this is why governments around the world are committed to continue to reinforce the recovery now underway, before we shift to restraint.

That is why President Obama signed legislation on Friday expanding and extending tax cuts for businesses and supporting workers who are struggling to find jobs.

That is why we are continuing to provide targeted support for small businesses and small banks to make sure we repair and open up the financial pipes that provide credit.

That is why we will continue to support the stabilization of the housing market.

That is why we are working to build consensus with our major trading partners on ways to open global markets.

That is why we are providing very substantial incentives for basic science, research and development, for job training and education, for new energy technologies.

And that is why we are trying to reduce the costs and burdens our existing health care system imposes on American families and businesses.

Government policy has to provide a bridge to growth led by the private sector. We’re now in the middle span of that bridge.

As growth strengthens and financial headwinds diminish, we will be able to begin the essential process of restoring balance to public finances and fully removing the broad backstop still in place for credit markets.

This will require a delicate balance.

If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater.

Our citizens and businesses and investors around the world must be confident that we will find the political will to restore fiscal responsibility and balance when recovery is in place. If that confidence ebbs, the recovery will be weaker, and we will have less flexibility to provide the reinforcement that the economy and the financial system may still require in the near term.

We need to reinforce growth to create jobs and get businesses investing again to underpin the recovery in the housing market and to repair the credit markets. It is too early to start to lean against recovery. The classic mistake in past crises was to put on the brakes too quickly. But we all recognize that confidence in our ability to reduce future deficits and to exit from the extraordinary monetary policy and financial emergency measures is very important to confidence in the sustainability of recovery.

Today’s G-20 statement reflects a very broad consensus that growth remains the dominant policy imperative across our economies. And we are bringing the same commitment to cooperation and coordination we demonstrated in the crisis to the agenda of reforms we outlined in London and Pittsburgh.

These reforms are directed at the critical priorities of laying the foundation for stronger, more balanced and more sustainable growth, at financial reforms that will create a more stable system with stronger rules to constrain risk-taking and at building stronger international financial institutions.

These are all global challenges. They are important to our national economic interest, but they cannot be addressed by the United States alone.

We made important progress on all these fronts today and look forward to advancing these reforms in the months ahead.

Let me conclude by thanking Prime Minister Brown, Chancellor Darling and his colleagues for bringing us to this beautiful country and for their leadership of the G-20 this year. That role now moves to Canada and Korea.

Thank you.

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