You can say one thing for Sen. Susan Collins of Maine. She is performing the service of giving bipartisanship a bad name.
Maine's current $6.1 billion budget has a revenue shortfall of $830 million, and Maine is facing the same kinds of layoffs and program cuts as other states. But Collins thinks it's clever to cut from the recovery package by some $40 billion in desperately needed to aid the states, in order to....what? In order to show that "moderates" can force the Obama administration to bend? I hope the lady's phone is ringing off the hook from bewildered constituents.
One also hopes that the House, where there is no filibuster rule, will push back, big time. Progressive strategists are talking about forcing Republicans to engage in an old-fashioned filibuster, with cots on the Senate floor, in order to shame so-called moderate Republicans like Collins into allowing the final conference bill to come to a vote. That would be salutary. But whatever the ultimate size of the stimulus bill that reaches President Obama's desk, it is likely to be only the first installment. I will bet that Congress will have to enact additional spending legislation as the economy seeks deeper into recession.
While the compromise bill has too many concessions to tax cutters in both parties, at least the administration has the basic concept about right. The bill is clearly not just meant as a one-shot, but a down payment on more adequate social outlay and 21st century infrastructure. As the recession deepens, if Obama does his job he will mobilize public opinion and isolate Republicans who would rather sink the economy than give a Democratic president legislative success. The current recovery bill is a good first step.
The same, however, cannot be said about the even more important administration initiative, the revised bank rescue plan. If we get the scale of stimulus spending right, it will put people back to work and prevent the economy from collapsing for lack of purchasing power. But if the banking system stays in a state of cardiac arrest, it will continue dragging down the rest of the economy.
Treasury Secretary Tim Geithner has postponed unveiling details of the plan yet again, until Tuesday, citing the need to work on the stimulus legislation. But Geithner and other administration officials have already leaked enough details to make clear that they lack the nerve to do what needs to be done.
Geithner has gone out of his way to throw cold water on the idea of bank nationalization. Rather, the new plan will be some variation on the original strategy that former Treasury Hank Paulson sought and then rejected--getting toxic assets off bank books without asking a great deal in return. The plan reportedly will allocate $50-100 billion for mortgage relief, but here again this is to be done indirectly rather than through direct federal refinancing of distressed mortgages.
Here's the problem with this whole approach. The government has not been shy about telling banks what to do, but has done so in an ad hoc manner, without adequate information, without a strategic plan, and without the authority that goes with ownership. The Wall Street Journal recently published a devastating investigative account of how the Treasury Department ordered Bank of America to acquire Merrill Lynch, a deal that turned out to be a disaster for the acquiring bank. Executives were warned that if they did not go alone with the plan, the Journal reported, there would be hell to pay.
Basically, the government has been acting as if it owned the banks, but in a half-backed, scattershot manner. It would be far better to nationalize the large banks outright, sort out their balance sheets, and then decide what level of financial relief is required to get the banks functioning. This prevents the dilemma of government either overpaying for assets that are currently under water, or failing to provide enough aid. If government is the owner, then government actually runs the bank and there is no risk of windfall benefits to banks at taxpayer expense. When the banks are back on their feet, they can be sold to new private owners.
The current approach, apparently to be revised only slightly by Geithner, produces the worst of both worlds. Government is left holding the bag for the losses, but government lacks the direct tools to run the banks properly. On the mortgage front, it would be far more effective for government to simply refinance at-risk mortgages directly, as the government did in the 1930s under Roosevelt's Home Owners Loan Corporation.
Obama's problem is that his key economic appointees are averse to radical solutions to a radical crisis. Geithner and National Economic Council chief Larry Summers have both been quoted saying that governments "make poor bank managers." Geithner's own track record as point man for the rescue efforts of the Bush administration certainly proves his point, at least as far as his own work is concerned. But in fact, the Federal Deposit Insurance Corporation, which does take over failed banks from time to time, has an excellent record of sorting out their balance sheets, nursing them back to health, and then returning them to the private sector. The Treasury lacks this competence. This is all the more reason for government to build up the necessary expertise and then take over failed banks, rather than just pumping in money and intervening in fits and starts.
There is time to add more money to the stimulus package if the first attempt falls short. But time is fast running out on the more urgent need to get the banking system functioning.
Robert Kuttner is co-editor of The American Prospect. His latest book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."
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I envision thousands of people in the streets in cities all over the county under the slogans:
No Bailout for Banks!
Take them over and make them work for us!
But the left has no infrastruc
How can we build one?
We need an economic justice rapid response internet system.
Anybody have any ideas?
Overall a good article, reasonable ideas, reasonable observatio
I agree with your criticisms of Obama's staffing problem, and I agree that nationaliz
Thanks for your article. We need more "food for thought."
BTW, you REALLY need to get an ed itor.
.
"Here's the problem with this whole approach. The government has not been shy about telling banks what to do, but has done so in an ad hoc manner, without adequate informatio
I owe, I owe.
The people fairly understand that government owes and that too many people owe as well, but are clueless as to how the financial system owes. The people are told that "housing is the core of the problem", don't know why. People who have kept their personal debt within reason are especially perplexed-
The "big" financal system--in
Mark to market allowed mortgages (assets) sponsored through our government
Owner: "Tell me what it's worth."
"That's more than I paid. I can sell it, take a quick profit and make more of these loans (assets) for more profits."
Multiple sales later (with fees for rating and commission
Lower credit card rates. The banks are making too much money on them and their fees.
My suggestion is that the people (that would be the GOVERNMENT
demand that,
in return for ANY government
EVERY bank receiving bailout money MUST increase the amount borrowed sufficient
and change those balances into UNSECURED PERSONAL LOANS,
made affordable by their term,
at a rate of interest of the cost of money borrowed(f
It's not only fair.
It restores buying power to the consumers who need it more than ever.
It stabilizes bank loan portfolios by using the taxpayer monies to reduce risk, and to increase the likelihood of repayment.
Economic democracy.
Someone needs to let Geithner know.
Because HE is who is acting on behalf of the people.
When it comes to helping cities and families they have a major problem with it. Suddenly the government is spending too much money. I've had enough.
It is time for the people to speak up. Where's our voice in this? We can't wait for the administra
The people do not like these bailouts and for good reason. FDR did not bailout the banks. WHen the banks reopened under FDR they were solvent. These banks did not come back for a bailout six minutes later.
The economy wil not find its bottom until this bank mess is sorted out, and the bank mess can only be sorted out after the losses are realized.
Why throw good money after bad?
Tell the banks point blank; no more. You didn't use what we gave you wisely. You're not getting any more. Try again next year and you better have something better to show for it.
Take the other half of the bailout and ADD it to the stimulus to put back every single item that was cut. Every one.
1. "Tell the banks point blank; no more. You didn't use what we gave you wisely.
You're not getting any more."
2. "Take the other half of the bailout and ADD it to the stimulus to put back
every single item that was cut."
THAT SHOULD SEND THE CORRECT MESSAGE.
Wiping out investors in finanical instituion
There is no economist of merit who does not belive thaat allowing Lehams to fail was an expensive mistake... costing at least 2 trillion and adding that much to the bailout... Its distressed sale of assets then became the value of the assets on all the banks books...
If no one defaults, the asstes become non toxic... the problem is us and how we voted and shopped for the last 30 years.
Regards
As for Lehman, I am sure it was handled badly but not because they let the bank go under. The people in government are either incompeten
Parties that relied on the bank in good faith should probably be protected. The government needs to go in and sort this out. But this needs to be handled in an honest and transparen
Investors need to take losses.