Preview Of Today's Washington Soap Opera

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With just 72 hours left until a possible government shutdown, everyone will be following each and every take from the DC soap opera over the next three days with great interest. As such, here is a summary of today's key events in DC via Goldman's Alec Phillips.

All eyes on fiscal issues today.  Yesterday, the consensus regarding budget negotiations seemed to have swung from viewing a shutdown as a clear risk to now viewing it as the most likely outcome (though still very uncertain). That said, talks will continue, in an effort to close the gap between positions on proposed spending cuts. House Speaker Boehner is reported to have proposed cutting $40bn from current levels versus the $33bn compromise floated last week, which if nothing else indicates that the gap between the parties amounts to a few billion dollars, and there is still a possibility of another very short-term extension of spending authority.
 
Morning – President meets with congressional leaders on budget?  The president is slated to leave town at noon for an appearance in Philadelphia, so any talks will need to occur this morning. Another meeting is expected in the next few hours, though no specifics have been announced yet. Another White House meeting clearly keeps talks going, though also serves as confirmation that no deal has yet been reached.
 
9:30 am – House Democrats meet in closed session on the budget.  Sentiment among fiscally conservative Democrats regarding the latest round of budget proposals could still be an important variable, in light of the diminished Republican support for the most recent temporary stopgap bill passed three weeks ago, which required Democratic votes to pass.
 
9:30 am – House Ways and Means Chairman Dave Camp (R-MI) and Senate Finance Chairman Max Baucus (D-MT) hold roundtable on tax reform.  Other members of the Joint Tax Committee (which is comprised of members of the House and Senate tax-writing committees) will also participate, to hear perspectives on tax reform from some of the architects of the 1986 reforms, former Treasury Sec. James Baker III and former House Minority Leader Dick Gephardt (D-MO).  Although broad tax reform looks like too heavy of a lift this year, market participants have been focused on the possibility of another tax holiday for repatriated profits. This has gotten a boost recently from House Majority Leader Eric Cantor (R-VA) who has signaled support, as well as Rep. Paul Ryan (R-WI), who assumed such a proposal in his budget resolution released yesterday (see below). However, the tax-writing chairmen appear less interested in this or other piecemeal reforms at this point, and Treasury Sec. Geithner spoke out against the concept again in testimony yesterday. 
 
10:00 am – CFPB legislative proposals. Banking industry representatives and others will testify on proposals to modify the Consumer Financial Protection Bureau created by the Dodd-Frank Act. While incremental changes are always possible, wholesale reform of the CFPB would be difficult to pass in the Senate, and would likely encounter White House opposition.
 
10:30 am – House Budget Committee marks up FY2012 Budget Resolution.  The draft budget resolution calls for $6.2 trillion in spending cuts compared with the president’s budget, and $1.8 trillion in revenue reductions (some associated with the repeal of the recent health reform law, some associated with tax reform, and some related to the absence of revenue raisers the president proposes). Compared with the CBO baseline, the budget proposes reducing the deficit by $11bn in FY2011 (all from spending cuts) and $86bn in 2012 ($110bn in spending cuts, offset by $25bn in tax cuts).   Note that the budget resolution by definition does not change law, so it serves mainly as a working framework for Congress, if it is approved by both chambers. The Senate looks likely to release its own budget resolution next week, but resolving differences between the two chambers is likely to be very difficult.
 
2:00 pm – House Republican Leadership press conference on the budget.  Will they have an agreement in hand?  If not, the focus will be on whether there is a contingency plan to provide for a short-term extension of budget authority ahead of Friday night, when current discretionary spending authority expires.
 
3:00 pm – Bank regulators testify on community banking. Representatives from the Fed, FDIC, OCC, and CSBC will testify.  Debate on the proposal on the Durbin amendment on debt interchange fees seems likely.