Tuesday, March 24, 2009

Tim Geithner's Legacy Assets

The more I see of this plan, the more I hate it.

Notice the one thing you do not see is any talk about a return of regulation of the banking industry, particularly the Glass-Steagall Act, which would have prevented much of the abuse that has led us to the financial debacle that we are in today, particularly for third party participants like AIG and Bear Sterns. No, you do not hear anything about it because Obama's advisers, like Lawrence Summers and the current Secretary of Treasury, lobbied and supported the repeal of Glass-Steagall under the Clinton Administration. In essence, we are rewarding the criminal activities of our lending institutions by taking their debt and putting it on our dollar as taxpayers.

Imagine the US government declaring that letting Bernie Madoff go under would hurt all parties involved ("he is too big to go bankrupt") and then assuming all the monies the man stole from his investors, while allowing his investment company to remain in business and Bernie free as a bird for his weekend jaunts to Hyannis. In another world, we would call this rewarding crime. Today, our government calls it asset management.

Why in the world would Obama fall for this is beyond me. I have stated all along that he is setting himself up for a fall by surrounding himself with these corporate hacks as his economic advisers, and today we are seeing the resulting equivalent of a financial congregation of Donald Rumsfelds possessing the levers of power over policy. Of course, the right-wing will denounce this and call the plan socialistic, but you only need to see the positive response from the real capitalists on Wall Street to see who the beneficiaries are going to be, and it is not going to be the average American.


GeithnerWatch said...

There is a growing sense out there that Geithner is consolidating power. Any changes in regulation lead back to the Treasury taking on more and more responsibility.

I wouldn't portray Obama as a sucker. Perhaps he's a bit misguided due to the situation - there are no easy answers to getting the economy back on track. In fact, there may be no artificial way to stimulate the economy out of its current state.

TA said...

This is not Geithner consolidating power anymore than Rumsfeld ran the war. In the era of the imperial presidency, the power emanates from the White House. These advisers are giving him horrible counsel, but it is Obama’s decision (and ultimate responsibility). As for regulation, this is a matter of Congress to decide, including who is to enforce the laws we have repealed that prohibited many of the predatory lending practices that have landed us in this mess. You do not follow a market-induced collapse by rewarding the people and their practices which shattered the economy.

As for the recession, I tend to agree. Of course, we've always had an activist government since the beginning and always will (we have been living in Alexander Hamilton’s country since Washington’s second term), and it can actually play both a positive and negative role, but as long as we permit the market to distribute, price set, and own the goods and industries of our society, we are implicitly agreeing to potentially allow them to use the business cycle for nefarious purposes (assuming we refuse to do anything about it [and having corporate insiders like Geithner and Summers is as good as any guarantee for the executives whose interests and love of the contract they truly represent]). The distortion is coming from the market, which is natural because markets are about differentiation, including the exploitation of difference that can precipitate terrible consequences for the rest of us. Sadly, all the government is doing is trying to write off the debt, without making sure that we gain a true return on our investment, and without making sure the most objectionable business practices are never repeated (with criminal and/or civil sanction to drive the point home).

And this is nothing new. We did the same thing after the S&L crisis in the late ‘80s and early ‘90s. We the taxpayer bailed out numerous banks and investors (many of whom should have been imprisoned), with the consequence being no change in the deregulated environment in the ‘80s that created the crisis later on (and a government assumption of debt caused by the accumulation). I can guarantee that as long as we bail these people out without legal consequences, they will continue to take bad risks, knowing full and well that we will be assuming the debts they tallied later on--instead of the subprime mortgages, it will be something else (probably another causation of banks’ NPLs). This is not just the fault of the unconvicted felons who populate the private sector in these industries, but our government which makes it legally possible for them do it and refuses to punish them afterward (except with a phony tax on bonuses from one company whose execs simply forgot how to live on our dollar without attracting the attention of the media).