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There are both encouraging and discouraging signs today in the battle over who’s in charge, Wall Street or Washington. First the good news. Finally, somebody in D.C. gets it.

Elizabeth Warren, chief watchdog of America’s $700 billion bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach to saving the financial system from collapse.

She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173 billion in bailout money, and banking giant Citigroup, which has had $45 billion in funds and more than $316 billion of loan guarantees.”

With one simple sentence Warren summed up what, in my opinion, should be the consensus among those in the Obama administration.

The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.

That’s the good news, now for the bad. There are some “administration officials”( I smell Larry Summers) who are busy looking for loopholes in congressional restrictions placed on financial institutions who receive bailout money.

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefitting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.”

“Persuading”, aka bribing.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

“Special entities” acting as “middlemen”, aka money launderers.

Speaking of limiting executive pay, Rep. Alan Grayson’s Pay for Performance Act, which does exactly that, passed the House 247-171, with 10 Republicans voting yes.

But there’s rain on that parade, too. Rep. Melissa Bean of Illinois, one of the so-called Blue Dog Democrats, sponsored an amendment which would “allow institutions that enter into a payment schedule with Treasury on terms set by Treasury to no longer be subject to the bonus and compensation restrictions created by the Act.

It passed 228-198 with the support of 63 Democrats, most of whom also voted for Grayson’s bill. Go figure.

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