(brought to you by FromDC2Iowa.blogspot.com*)
As I listened to Treasury Secretary Tim Geithner explain his "Financial Stability Plan" the line that kept running through my head was "Meet the new boss -- same as the old boss!" from The Who's "Won't Get Fooled Again" (lyrics from "Folk and Traditional Song Lyrics" -- the line is about 7:50 into this YouTube video):
Geithner's plan strikes me as what the Bush Administration Treasury Secretary Paulson's plan might sound like after you had run it through a public relations firm.
This is not surprising, given that Geithner was working with Paulson on that earlier taxpayer giveaway program. Paulson who spent 32 years at Goldman Sachs and who is reported to have left with a net worth of $700 million. Goldman Sachs, where Geithner went to get his chief of staff, Mark Patterson. Patterson who, after working for Majority Leader Tom Daschle, signed on as Goldman Sachs' Washington lobbyist from 2005 through April 2008 -- thereby violating not only Obama's campaign promise to not hire lobbyists, but the subsequently adopted exception that lobbyists could join his Administration only if they worked in areas unrelated to their previous lobbying. Justin Rood and Emma Schwartz, "Another Lobbyist Headed into Obama Administration; Leaves Critics Questioning the President's Commitment to Changing Washington," ABC News, January 27, 20089.
[And see: "Even before the revelation of his tax delinquency, the new Treasury secretary was a dubious choice to make this pitch. Geithner was present at the creation of the first, ineffectual and opaque bank bailout — TARP, today the most radioactive acronym in American politics. Now the double standard that allowed him to wriggle out of his tax mess is a metaphor for the double standard of the policy he must sell: Most “ordinary Americans” still don’t understand why banks got billions while nothing was done (and still isn’t being done) to bail out those who lost their homes, jobs and retirement savings. . . . [T]he political problems caused by Geithner’s tax infraction are secondary to the larger questions raised by his past interaction with the corporations now under his purview. . . . [H]e still has not satisfactorily explained why, as president of the New York Fed, he failed in his oversight of the teetering Wall Street institutions. Nor has he told us why . . . he secured a waiver from Obama to hire a Goldman Sachs lobbyist as his chief of staff . . . [or]why Lehman Brothers was allowed to fail while A.I.G. and Citigroup were spared." Frank Rich, "Slumdogs Unite!" New York Times, February 7, 2009.]
Geithner didn't sell me, and judging by the near-5% drop in the S&P 500 following his presentation he didn't sell the financial community either -- though I rather suspect for different reasons.
["Stock prices fell sharply on Tuesday after Treasury Secretary Timothy F. Geithner unveiled the government’s latest efforts address the troubled banking system, a plan whose price tag could reach $2 trillion in money from the Treasury, Federal Reserve and private sector. . . . Despite the size and scope of the Obama administration’s plans, investors said Mr. Geithner’s proposal raised more questions than it answered. The way out of the financial crisis, analysts said, looked as murky as ever." Jack Healy, "Stocks Slide as New Bailout Disappoints," Reuters/New York Times, February 10, 2009.]
Tell me why (to use some hypothetical numbers), if you could buy an entire bank, buy up all its stock at market prices, for say, $15 billion, why would you make the executives who brought it to near bankruptcy a gift from the U.S. Treasury of $25 billion (by buying its "toxic assets") and then have the Federal Reserve "loan" it an additional $50 billion? (In November 2008 the government agreed to cover up to $306 billion worth of Citigroup losses. See editorial immediately below.
And please note that U.S. taxpayers' dollars at risk are currently approaching $10 trillion dollars! Mark Pittman and Bob Ivy, "U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs," Bloomberg.com, February 9, 2009 ("Senator Byron Dorgan . . . said on the Senate floor Feb. 3, 'Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?' . . . The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.")
["[I]n a few months last year, the government overpaid for banks’ troubled assets by some $78 billion — a redistribution, in effect, of taxpayer dollars to the banks and their shareholders. And for what? The system . . . has since edged up to the abyss again. . . . Putting taxpayers first means that in exchange for shoring up the banks, the government must receive ownership stakes . . .; de facto, taxpayers would own the bank. . . . Contrary to stereotype, in countries that have successfully weathered serious bank crises, including the United States, such a takeover is preferable to leaving firms in the hands of those who have so badly mismanaged them." Editorial, "Bank Bailout, Redux," New York Times, February 7, 2009.]
Ah, you say, temporary nationalization won't work because the government can't run banks. Putting aside the fact that governments have done so in other countries, if our government can't run banks then I guess there's no one in this country who can. Because the only folks who have removed all doubt as to their inability to run banks are those in the private sector who have been running them into the ground.
Geithner apparently did sell President Obama -- who cannot now dodge the fact that this is his plan. The Times reports this morning that its elements emerged following "a spirited internal debate," a debate that Geithner won and David Axelrod and others lost -- a debate that we must assume could only have been judged by Obama, who has proclaimed himself as being, to borrow Bush's self-characterization, "the decider." Stephen Labaton and Edmund L. Andrews, "Geithner Details New Bank Rescue Plan," New York Times, February 10, 2009.
Even Geithner acknowledged, "I want to be candid: this comprehensive strategy will cost money, involve risk, and take time. . . . We will have to adapt it as conditions change. We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted." (The full text of his presentation is available as "Remarks of Treasury Secretary Timothy Geithner Introducing the Financial Stability Plan," February 10, 2009.)
The Times' story continues:
Some of President Obama’s advisers had advocated tighter restrictions on aid recipients, arguing that . . . the administration did not demand enough sacrifices from the companies that receive federal money. . . .There you have it: what Geithner himself acknowledges is a costly, risky plan taking us to times when things will get worse, with mistakes along the way.
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod . . ..
Officials . . . expect to return to Congress for more money later this year. . . .
The $500,000 pay cap for executives at companies receiving assistance . . . applies only to very senior executives. Some officials argued for caps that applied to every employee at institutions that received taxpayer money.
Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. . . .
Nor is the government announcing any plans to replace the management of virtually any of the troubled institutions, despite arguments by some to oust current management at the most troubled banks.
Finally, . . . the administration . . . will not dictate to the banks how they should spend the billions of dollars in new government money.
And for all of its boldness, the plan largely repeats the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.
It is a plan that gives trillions of taxpayers' money to the same guys who created the problem, who have shown themselves to be ethically and intellectually incapable of solving it, and it does this without replacing any of them, with no restraint on what they do with the money, little or no loss to their shareholders, no requirement that they make loans, and no limit on what most of them can be paid with our money or how much of it goes to private jets and office redecoration -- and as an afterthought less than 5% that may someday be devoted to helping those facing mortgage foreclosure.
In short, this proposed giveaway to the banking and investment industries is -- like the Obama Administration's recent adoption of the Bush approach to rendition and torture -- a plan that, as the Times says, "largely repeats the Bush administration’s approach." [See, e.g., "Justice Department Stands Behind Bush Secrecy in Extraordinary Rendition Case," ACLU, February 9, 2009 ("The Justice Department today repeated Bush administration claims of 'state secrets' in a lawsuit against Boeing subsidiary Jeppesen DataPlan for its role in the extraordinary rendition program").]
"Meet the new boss -- same as the old boss!"
Nicholas Johnson, "Who's The Reason?" September 5, 2008
Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008
Nicholas Johnson, "Taxpayer Rescue," September 15, 2008
Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008
Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008
Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008
Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008
Nicholas Johnson, "It's the Economy," November 7, 2008
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008
Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008
Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008
Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")
Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008
Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008
Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008
Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008
Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008
Nicholas Johnson, "A Car in Every Garage," December 16, 2008
Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008
Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008
Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008
Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008
Nicholas Johnson, "Revolting Developments," December 23, 2008
Nicholas Johnson, "First Things First," January 8, 2009
Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009
Nicholas Johnson, "Fool Me Twice," January 14, 2009
Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009
Nicholas Johnson, "No More for Wall Street!" February 1, 2009
Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009
Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009
Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
1 comment:
I am curious as to what your alternative is for fixing the banking system. Nationalize them? Just take the complete leap to socialism?
Until bank credit gets flowing and the assets re-valuate, it wont matter if we give anyone a stimulus check.
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