Plan B On The Big Banks
Most of us who have been working on the banking issue from the restructuring side of things (meaning put the big banks into receivership and break them up into smaller components that are no longer too big to fail), including people I know far closer to the administration's economic team than I am, have come to the conclusion that the administration's policy regarding the big Wall Street financial institutions is fairly set for the time being. There are a variety of reasons Obama has chosen this path - the fact that Geithner and Summers really believe it is better to resuscitate the big banks rather than to fundamentally restructure them, the belief (reinforced by the Senate's recent failure on cramdown legislation) by senior administration officials that despite the populist anger among the general public that there is no political will in DC to take on the big banks, the reality that most of the media's shallow interpretation about whether something works is whether the Dow Jones goes up the day the plan is announced. But regardless of the reasons, this is the reality we are living with. Obama has clearly chosen a path, and those of us with a different idea about how to work on these issues have to live with the fact that we have lost the debate, for now, inside the administration. The question now is: what do we restructuring advocates do now?
I think there are two ways going forward that are constructive. The first is to really invest in long-term organizing and institutional building on the finance issue. While it is disappointing that Obama hasn't used this economic crisis and the populist anger it invoked to more fundamentally change the system that brought us to this pass, it's not like finance issues are going away or will recede in importance in years to come. Now is the time to build institutions with the grassroots, political, and intellectual firepower to battle the banks in the years to come. We clearly have a stable of economists and business people who get what is going on, including George Soros, Joseph Stiglitz, Paul Krugman, Dean Baker, Rob Johnson, Simon Johnson, Leo Hindery, and others. What we need is long term institutional political power to build the constituency that will fight this fight effectively.
Just as importantly, we need to work constructively with the Obama administration to be prepared with a plan B if what they are doing begins to show significant weaknesses. If, as we restructuring advocates fear, the Geithner/Summers plan does not work to rebuild the economy, and/or the plan is gamed by the big banks to create other AIG bonus style scandals, Obama will be forced to turn to a plan B. If that happens, as I wrote a few weeks ago, progressives should avoid going into I-told-you-so mode, and instead be ready with a strong progressive plan that they can push with the administration. The economic thinkers listed above ought to be working together right now to come up with a strong plan B option. If we can keep a constructive dialogue going with the White House, and mobilize our friends in Congress and in the media, such a plan has a chance of being adopted.
For strong Obama supporters like me, watching the Geithner/Summers plan get put into place has been incredibly painful to watch, because my highest political priority is to help Obama be a successful President, and I fear not only that this plan will not be a success, but that it will damage everything else Obama is trying to do. But if the plan does fail, I am confident that Obama is a lot smarter and more pragmatic that George W. Bush, whose single-minded ideological blindness kept him marching straight forward without change no matter how disastrous his policies had become. Obama has the pragmatism to go to a plan B if Plan A isn't working, and progressives should be ready to work closely and constructively with him to create a good one.
Arianna Huffington: Take the Steering Wheel out of Geithner's Hands
Tim Geithner's actions throughout his career, including his time as Treasury Secretary, are proof that the toxic thinking that got us into this mess is part of his DNA.
Jane Hamsher: Melissa Bean Helps Banks Gut Bill to Limit TARP Bonuses
The New Democrats and the Blue Dogs made good on their threats to join with Republicans to block legislation that would limit the payment of TARP bonuses. Score one for the banks.
Stuart Whatley: Enough With The Pitchforks And Head-Rolling
Such knee-jerk populist rage is precisely what gave populist rage a bad name in the first place, whereby a valid democratic outlook is construed as nothing more than an angry-mob uprising.
Jennifer Delaney: AIG Bonus Money is Kid's Play: Literally
If AIG were to donate the 418 bonuses to charity, it would be a brilliant preemptive PR move to neutralize its current out of touch public persona. Here's what the money could provide.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
I too want Obama to succeed but if he lacks the judgement to understand that men like Summers and Geithner who seem to have spend their careers being wined and dined by the financial industry and getting all the perks of their position, i.e. essentially have been corrupted by the system they are in charge of reforming, then perhaps he has a fatal flaw which will affect his decision-making in other areas--perhaps we see this in his foreign policy decisions in Afganistan and Pakistan. Better than Bush should not necessarily be a reason to support the President. What we need to do is to establish a movement that can support candidates who are progressive and who are not in the pocket of the special interests like the financial industry or the military-industrial complex. These candidates must begin to take by the Congress so there are true checks and balances and voices for the taxpayer. Obama and his advisors are again showing faulty judgement if they think the homeowners who have lost equity and can't refinance and those whose access to credit is denied are going to applaud the fact the banks are stabilized when they are living under the freeway overpass. Those who enjoy gourmet meals in the executive dining rooms are out of touch with the people who find it hard to keep their families fed.
"Obama has clearly chosen a path, and those of us with a different idea about how to work on these issues have to live with the fact that we have lost the debate" ... sadly that is also my conclusion.
"Obama supporters like me, watching the Geithner/Summers plan get put into place has been incredibly painful to watch, because my highest political priority is to help Obama be a successful President, and I fear not only that this plan will not be a success, but that it will damage everything else Obama is trying to do" ... and here I also agree.
Good article ... there is wisdom therein.
Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.
By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?
So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.
The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).
A system like this will make the financial markets work as smoothly as the local fruit market.
"Despite the populist anger among the general public that there is no political will in DC to take on the big banks." Or at least not in the White House.
What debate? These decisions are made behind closed doors without an economist within sight or sound. The perps called the shots. We are not losers, we weren't even players.
If there had been a debate, it's unlikely we'd lose. The facts are plain and they don't support Obama/Giet
Obama et Co. have badly underestimated the enormous amount of public anger .It's a perfect moment to mobilize.
Waiting for the perps that Obama appointed to fix this mess is not an option. The penalties are too great and fall only on the innocent and vulnerable. The cracks are all ready showing in the Wall Street solution. The time to push for a real solution is now not when the money's all gone and many more Americans are flat on their backs.
Blind support when a president renigs on promises to give Americans the same deal
Wall Street gets, to appoint men and women of integrity and to consult experts when decisions need to be made is not helpful.
Agreed.
I believe it is time for public protests. The populist movement needs to let its will be known in a big way. We need for the government to not give the banks another penny. We need usury laws that will eliminate high interest rates that seduce the financial industry into bad risks. We need strict regulation of all facets of the banking industry. And we need to let some of these banks fail and the bond holders lose all of their money, so that they understand we will not put up with this type of behavior in the future.
The bad behavior of the banks is already starting again. They are already creating another banking mess. It needs to stop and if the administration and the congress cannot do it, then we the people need to look at a constitutional convention to create a constitutional basis to prevent the types of excesses we have recently witnessed.
America can not afford to go through this again any time soon. But if we don't do something now that is exactly what is going to happen. You can start by withdrawing everything from BofA and CitiGroup. That will be a cannon volley across their bow. Then groups like Move-on need to step in and make the will of the people known.
I hate to be the one to break it to you, but we (the little people) have no "friends in Congress". Only those making big campaign contributions have friends in Congress (see closing offshore tax haven loopholes, if you have any doubt). Plan B? Geithner, Summers, Congress and the banks will never let plan B see the light of day. Receivership was the right answer from day one and I'm pretty sure Obama knew it. Unfortunately he put the foxes in charge of the hen house and they keep things limping along until public outrage wanes. The only way anything will ever change is by eliminating corporate lobbying, corporate campaign contributions and term limits.
I disagree with you sir, in one minor point...
As we develop plan B, we need to make sure that Plan A is nudged in directions that support plan B.
I am not saying try to force plan A into plan B, but make sure that plan A does not harm plan B if possible.
I am sure an example is needed, because even I am confused by what I just wrote, and I wrote it!
Any plan A which prevents funds from being distributed to stockholders and curtails executive pay supports a plan B, because it makes sure that taxpayer money stays in the banks we "invest," in. That way if we have to take over the banks, at least all of our money will still be in them (less whatever is needed to cover losses on the prior bad decisions, but we probably would have paid that money anyway).
Just as importantly, we need to work constructively with the Obama administration to be prepared with a plan B if what they are doing begins to show significant weaknesses.
----------
I commend you for your enthusiasm and your commitment to improve things. However, I also think you are too naive in believing that, when (not if) the current plan fails YOU or anyone else than Goldman Sachs would be allowed to implement a new one. They control Government and thus they control legislation. It is simply no longer important whether you agree with anything they do or not.
Of course, once this players are removed from power - which they will be - it will become possible to implement something new. But I guess for that, the entire ecomomic system has to be rebuild from scratch.
http://ale
Perhaps patience is the answer. However, it is hard to to be patient when the financial sector has retrenched with taxpayer bailouts, bonuses are again increasing, "profits" drive up the credulous Dow and Nasdaq, and the banks torpedoe Durbin's housing and bankruptcy legislation against citizens' and the banks' own interests. This is an industry that is destroying itself and society/economy, and the administration and Capitol Hill refuse to address this reality. Wall Street has become a symbol of destruction, not construction. Handmaidens to the destruction are those who do not stand up for the citizen/consumers (we seem to be an abstract concept to DC).
The middle class and aspiring classes who took upon themselves to save, build 401(k)s, invest in the American dream with equity in a house have been betrayed. Rectifying this should be priority #1. Without the middle class, Wall Street would not exist in its present form and thus have much less power to extort.
Right now, Obama is popular and could make the changes necessary to restructure our broken banking system. Waiting for him to accept a Plan B option is probably not a good strategy - there are just too many variables. I think we should go at Obama very hard and call B.S. on his trickle down, recapitalize the criminals strategy for economic "recovery.
It's getting tiresome, isn't it? It's hard to go around with this degree of incredulous rage each day. I am starting to understand why people go postal.
I too had great hopes for Obama.
As far as I'm concerned, however, he's done.
No amount of pragmatism, no amount of other actions can excuse his headlong rush to guarantee the bloated compensation of banksters - the very people who created the problem.
Millions are unemployed and suffering because of the deceit of these individuals. And more will suffer still. Obama has decided that it is better to support, defend and facilitate more of their behavior.
Unacceptable.
One more week of unemployment help. The interest rate on my plastic just went from 7% to 17%. Oh well a-camping we will go until Plan B starts working.
Absolutely.
You must be logged in to comment. Log in or connect with
