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.