Friday, February 13, 2009

Bank Bailout Principles (lost)

Recently, the NY Times reported that Treasury Secretary Tim Geithner had prevailed in Administration debates over the shape of the bank bailout plan. His victories included:

o reducing limits on executive pay for companies receiving federal aid
o giving banks flexibility on how they spent the money
o protecting the jobs of current executives
o preserving share value by avoiding bank nationalization

So, he appears to have succeeded in resisting calls for more government control of the banking/investment business. How does this differ from the Bush approach?

Under Bush, banks took the money, and refused to report how they may have used it. The government refused to publish a list of those which had received federal aid. Acquisitions and mergers took place, instead of business and consumer loans. Accountability was lost in the fog.

The public charade of yelling at the managers who created this mess, yields to the reality that they will keep their jobs, and much discretion in using the money.

The Administration also appears to have decided to do nothing about the Bush giveaway. Why not go after the huge bonuses (tax them at high rates?), require aid money to be passed through as loans, condition aid on replacing the directors and executives who failed, let fail those banks deemed too weak to survive, and nationalize banks which refuse to serve the public?

Mr. Geithner is not "change." He is not protecting the public interest. Mr. Obama should fire Geithner, appoint a truly progressive Treasury Secretary, and most important, listen more closely to David Axelrod: dance with the one who brought you to the party. His principles are more in tune with the change we need.

2 comments:

Anonymous said...

Yes, the Geithner appointment was disconcerting -- partly because of the appearance (given his tax payment lapse) that the vetting process had not been rigorous enough but mainly because of the suggestion that he was one of the few possible choices available because of his intimate involvement with the banking industry and with the recent halting efforts to address the country's and the world's fiscal woes. Your post, by the way, is nicely complemented by a 2/15/09 article -- What's So Bad About a Banker Brain Drain? -- by economics Professor Gerald Epstein that is posted on the Truthout.com website at http://www.truthout.org/021509A. The Epstein article was prompted by the suggestion that a pay cap would lead "high paid bankers will flee elsewhere in search of the top dollar." Epstein concludes: "Make our day."

Anonymous said...

For added perspective -- but not really a different perspective -- to my earlier comment, see Bill Moyers' 2/13/09 interview of Simon Johnson who (per the Moyers introduction) is "former chief economist at the International Monetary Fund. He now teaches global economics and management at MIT's Sloan School of Management and is a senior fellow of the Peterson Institute. He is co-founder of...baselinescenario.com — where he analyzes the global economic and financial crisis." THe video and transcript of the interview is available at http://www.pbs.org/moyers/journal/02132009/watch.html.

A little more than halfway through the interview, Moyers asks: "So here's the trillion dollar question that I take from your blog...'Can this person,' your new economic strategist, in this case Geithner, 'really break with the vested elite that got you into this much trouble?' Have you seen any evidence this week that he's going to be tough with these guys?" Johnson responds: "I'm trying to be positive. I'm trying to be supportive. I like the administration. I voted for the president. The answer to your question is, no, I haven't seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach."

Leo