On Tuesday morning, I attended a breakfast policy talk featuring Elizabeth Warren, the head of the congressional oversight panel that keeps an eye on the TARP program. Her remarks were off the record -- not that she said anything that secret or that extraordinary (such as, "Take all of your money out of the bank now!!!!") But without reporting what she did say, let me note that she comes across as pretty darn terrific: darn smart and darn sensitive to the needs and travails of average American families. I'm ready to endorse her as replacement for Treasury Secretary Timothy Geithner.

But that's not what I wanted to tell you about. Later in the morning, I was at Union Station, and I spotted former New York Gov. George Pataki getting a shoeshine. As he got off the stand -- shoot, I forgot to notice if he tipped the guy -- I asked what he was doing in town.

"Government stuff," he said.

"Government?" I asked. Was he joining the Obama administration? He clarified:

Okay, now I'm officially scared.

Ever since I did an article reporting how former Senator Phil Gramm slyly prevented the regulation of credit default swaps, I've worried about the shadow economy of financial derivatives--financial instruments bought and sold by large financial institutions off public markets, often to hedge or cover their wild and woolly speculation.

Now, The Motley Fool guys are pointing out that the trillions of dollars being devoted to the various financial bailouts--$13 trillion, by their count--comprise not much more than a drop in the bucket when compared to the total (and shaky) derivatives markets. Writing about Treasury Secretary Timothy Geithner's plan to mop up toxic assets held by big financial firms and other bailout initiatives, one of their site's bloggers notes

Fools may be right to question whether any amount of money will prove sufficient to sate the hunger of this deleveraging beast. According to the Bank for International Settlements, the notional value of over-the-counter derivatives worldwide reached a mind-boggling $684 trillion last summer. That's more than six times the scale they had reached by 2002 when Warren Buffett dubbed derivatives "financial weapons of mass destruction".

Perhaps the trillions pledged can plug the leaks from subprime mortgages and failed auto loans, but can we reasonably expect to keep a derivatives market afloat that is at least eight times the size of a contracting global economy? I don't know, but I sure hope Bernanke and Geithner do....

To be clear, a sizable disconnect remains between the number of casino chips presently in play and the pile from which more chips may be drawn as needed.

Wow. What if this derivatives market needs bolstering? It does seem too large to be propped up. (Imagine holding back a tsunami.) But what if it does collapse? I don't know. So much of derivatives activity is complex and opaque, and apparently few people truly understand it. But my hunch is, an implosion of a $684 trillion dollar market won't be good.

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On Monday, as I was heading to the White House for the daily briefing, I ran into one of President Barack Obama's senior economic advisers. This person was holding a shopping bag from a bargain retail outlet.

"Shopping?" I asked. "On a day like this?" I was referring to Treasury Secretary Timothy Geithner's unveiling of the administration's toxic assets purchase program.

"I'm not making any announcements today," this economist said.

I noted that the plan seemed a pretty good deal for the banks holding the junk and for the financial firms that will receive federal insurance to cover most of the purchase price of the assets they buy.

"It's not the only way to do this," this person said. "There are lots of ways you could do it."

Lots of ways? At Geithner's press briefing that morning, Geithner had repeatedly insisted that the administration did not have many alternatives to its proposed program. Without such a plan, he said, the government would either have to buy up all the toxic waste on its own, or it would have to stand idly by as financial institutions fold and the credit system further collapses. But this economist was suggesting there was an assortment of actions the feds could have tried. I wondered about Geithner's line--which would be echoed later in the day by White House press secretary Robert Gibbs--that his plan was the only reasonable course of action.

But, I asked, will this particular way work?

It could, this economist replied, with a shrug. But then she/he switched the subject and criticized Christina Romer, the chair of the White House Council of Economic Advisers. The day before, Romer had said of the firms that will be participating in the toxic assets program:

Sitck a fork in it. Obama's presidency is done. He's lost the people. He's adrift. He's screwed the pooch.

Some pundits are already pronouncing the O Era a bust--or suggesting it's near the cliff's edge. In the White House press room, reporters routinely ask press secretary Robert Gibbs if the Obama White House has already lost its mojo. Over at The Weekly Standard, Fred Barnes has declared Obama's stint a "flailing presidency." Given that Barnes considers the Bush presidency one of the best in this country's long history, his success-o-meter may be in need of recalibration. Barnes verdict is based mostly on the AIG bonus mess, which he calls a "crisis." Maybe for Senator Chris Dodd. But for most folks--including the man in the White House--the true crisis is the collapse of the economy. Certainly, the White House did not handle the AIG business well last week. But by bringing up Watergate while referring to the AIG business, Barnes shows how desperate he is to turn a bruise into a coma.

Over at Newser.com, media-poker Michael Wolff also went after Obama. He called him a "terrible bore." And--insult of insults--he compared him to Jimmy Carter. Obama's great sin, in Wolff's eye? He delivered a "turgid teachy fiscal lecture" on Jay Leno's show on Thursday night. Wolff goes on:

On the run today. But I just broke a story with my colleague Jonathan Stein: Treasury Secretary Timothy Geithner's chief of staff--a former Goldman Sachs lobbyist--lobbied against a bill to curb CEO pay. And guess who introduced the bill. Yes, Barack Obama, when he was a senator. That is, a Washington influence-peddler named Mark Patterson who worked against Obama's effort to limit excessive corporate pay is now a key member of the Obama administration team that is supposed to contain excessive compensation in the AIG case and in general. Talk about the revolving door spinning wildly.

When Patterson's appointment was announced, good-government groups grumbled about placing a Wall Street lobbyist in a senior post at Treasury, and the White House had to grant Patterson a waiver from its new and strict ethics rules prohibiting lobbyists from obtaining jobs in areas related to their lobbying work. There's no telling if Patterson's previous endeavors for Goldman Sachs have unduly or improperly influenced his actions at Treasury. But it may be hard for some folks to understand how one can go from working against a policy as a lobbyist to working for the same policy as a senior administration official. Patterson presumably is toiling alongside Geithner these days to recover the AIG bonuses and to establish wide-ranging limits on corporate compensation elsewhere.

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Is Barack Obama trying to do too much at once? Should Timothy Geithner go? Jim Pinkerton and I ponder all this and more in our latest Bloggingheads.tv diavlog. And, once again, we argue over global warming because Pinkerton continues to insist that it ain't happening and that all those scientists who say it is are part of some politically-driven plot. Yes, he does. Really.

By the way, this was filmed hour before Chas Freeman withdrew his name from consideration as head of the National Intelligence Council. In the diavlog, I said that Freeman might survive and that the issue was only at Defcon 4 or so. So once again we learn, beware making predictions. By the way, in the above diavlog, Pinkerton predicted that Obama will serve no more than one term, and I was forced--practically against my will!--to remind him (oh so gently) that he had predicted that Obama would lose about 40 states in the November election. A lesson to us all.

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