Obama's Wall Street Woes

So much for perfect timing. Barack Obama presented his economic team -- Summers, Geithner, Orzag -- all protégés of Robert Rubin -- just as the Treasury Department was pumping out billions to rescue Citibank -- which featured Rubin as chair of its executive committee -- from collapse. Is this the change we need?

Forget about Rubinomics redux. The depth of the crisis we face renders the old arguments irrelevant. Under Bill Clinton, Rubin championed reducing budget deficits, deregulating finance, and opening foreign markets to private investment. Now deficit spending must go up, banks must be re-regulated, trade imbalances must be reduced and manufacturing can no longer be scorned.

Obama gets this. His first initiative will be to pass a substantial and sustained recovery plan based on putting people to work with public investment in areas vital to our future. He's chosen experienced hands to get that done. In his Cooper Union address during the campaign, he laid out clear principles for re-regulating finance, and curbing the excesses that created the mess we are in.

But his appointment of NY Fed Bank head Tim Geithner as Treasury Secretary can't help but raise concern. Geithner has been, along with Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, at the center of the erratic and secretive Bush administration reaction to the financial collapse. He'll be ready to go from day one, Obama noted. But go where? As the New York Times editorialized today, the Senate better probe whether Geithner has learned anything in the Paulson follies, for after dispensing what Bloomberg News estimates is more than $7 trillion -- yes trillion -- to keep the banking system from collapsing, things aren't getting much better. The big banks still verge on insolvency and they still aren't lending.

The Citibank deal is a perfect illustration of the failure. After investing $25 billion in Citibank last month, taxpayers learned that, after one more Sunday night perils of Paulson drama, they'd be pumping in another $20 billion, while helping to guarantee $306 billion in Citibank "assets," mostly mortgage backed securities of dubious value. (Citibank takes the first $29 billion in losses; taxpayers cover 90% of the rest).

In return, we get preferred shares that pay 8% dividends and... not much else.. OK, Citibank's dividend is reduced to 1 cent for three years. Executive compensation has to be approved by the Treasury. But senior managers are not fired. The board is not replaced by public representatives. Forced reorganization is not ordered. Unlike the auto companies, Citibank isn't asked for a new plan to save itself. Citibank spokesmen say they will keep on with their current plan. Which as far as anyone can determine consists of layoffs, prayer, incantations, and throwing themselves on the thus far tender mercies of Hank Paulson.

The stock market went up on news of the deal and the announcement of the Obama team. But at the end of this, Citibank, which claims assets of over $3 trillion on and off its balance sheets, still holds hundreds of billions of toxic paper. It's doubtful it can cover the losses it agreed to take under the new deal without going belly up. Speculators know this. Unless the housing bubble reflates or the economy suddenly revives, Citibank will surely be back for more help soon enough. And other mega-banks, also too big to fail -- and too big to succeed -- will line up to get the same treatment.

Obama has turned the page on Bush's purblind refusal to spend the money needed to get the real economy going. But with the Geithner appointment and the apparent willingness to stand with Paulson going forward, Obama seems perilously close to following the same course as Bush in the banking bailout. For a man who won the presidency understanding that it was time to turn the page, this would be a good place to do just that.

Comments

[TheSolver]

The Credit Crisis, a more direct aproach

Facts:
Banks have stopped making loans.
Banks have taken government monies under false pretenses.
A Bank that stops making loans is no longer a Bank.

Suggestions:
Take the money back from any Bank that is not lending it back out.
Allocate money, by force if necessary, to Banks with the condition that they must lend it out and pay the government ½ the interest that the bank is getting on the loans.
Failure to lend the government loan money back out, may cause the revoking of their Banking Charter.
Not lending is not an option.
Excessive rates will not be allowed as a method of not lending.
All monies misused will be recovered, by the banks and/or the government.
Failure to cooperate with the lending program may also result in the revoking of the Bank’s right to participate in any way in the credit card business.

Results:
Credit will flow again quickly.
Business and consumers will get the loans they need.
The government should make money on the loans.

[Pushmepullu]

I am really worried about Obama's economic team. All proteges of Robert Rubin! Eeek! Why did he appoint wolves to save the chickens? Is Obama something different than advertised? It would appear so. The Senate and House must confirm these appointments. I urge everybody to take this threat to our future seriously and advise your elected representatives, both in the House and the Senate, to savagely grill these appointees to determine if they can be trusted to do something other than what they did to cause the crash of the financial system and the economy! If not convinced, vote them all down.

[Wesley123]

check out these 5 comedians comment about the current economic crisis and the presidential
duel..some of finest political comic commentary ive seen in ages!! bwahahahaaha!!
http://effinfunny.com/debates-and-bailouts

[Vasey]

Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson are out of their friggen minds. They are throwing the federal treasury money after so much bad it isn't funny. Why can't they see that it's not working?

[Vasey]

Wall Street is like Humpty Dumpty. All the Fed's horses and all the Fed's men just can't put Humpty together again.

[Nancyann]

Time to get rid of the Clintonistas. They had their time. Barack said it would be something new. I AM WAITING !!!!!!

[snarkopolitan]

Yeah, he's been president now for negative one month and already he hasn't done anything about those Clintonistas!

The change I've seen is from partisan attacks and dismissing the highly qualified for political cover to treating people as if they are fallible but reasonable adults. That's a novelty now, isn't it?

[Antifascist-08]

Anyone can hear these same tired words on any cable channel every day. They are Republican talking points.

Read what is already on Obama's site. He has already spoken out in favor of many of the things you people are so up in arms about. he has promised to do what he said he would do. What else can he do right now? So now we don't trust him after this whole campaign?

All of the hand wringing and whining is just playing into the hands of the right wing nut jobs who send these talking points to the media every day. You are all falling into the same old trap. Its time to forget about all the politics and media garbage of the past 8 years and move on.

This instant gratification type of posturing is really making me sick. Every day we get all the predictions and speculation from the same sorry sources. Look at all the ignorant trolls who are infecting this thread. "Free market?" No such thing, Never was, never will be. "Greed is good?" Here to stay if you buy into the current attacks on a man who should be in office now to stop the outright stealing of our money.

Bush should be impeached and thrown in jail for high crimes. And here we sit nit-picking the man we elected who has the worst job of any president in our lifetimes to look forward to? Shame on all of you.

[mattfiller]

By backing off from troubled asset purchases, Treasury Secretary Paulson has destroyed confidence in his effectiveness. His announcement almost immediately brought on the Citigroup debacle, with the result of Treasury and the Fed "investing" far more on one bank than its share of a phased asset guarantee/buyout. His reckless actions also accelerated the coming commercial real estate collapse. Paulson should resign, effective as soon as a successor can be nominated and approved. Bush should appoint Geithner immediately, and the Senate should confirm him next week.

[SOLERSO68]

I dont understtand how the worriers conflate picking geitner with" standing with paulson" or better yet "continuing down the same path as bush". In one paragraph obama "gets it" in the next hes "continuing down the same path as bush", and he hasnt even actually become president yet. wow.

[krocklin]

Military and Healthcare spending are in pressing need of reform more than anything; perhaps if sound fiscal policy is to be achieved.

However, the issue of lobbyists is on par with these needed reforms.

Under Bush, the number of lobbyists tripled. This decisively corrupted the political process hand-in-hand with the toxic Republican anti-government deregulatory climate.

Why not do away with lobbyists? If private companies or industries have agendas, why can't they present them PUBLICLY in front of congressional committees?

Do other countries have lobbyists?

Until this is addressed our entire system will continue to be hobbled.

[Smoothsail]

Is this going to be Carter all over again?

[krocklin]

I hope so. Let us hope Obama has Carter's vision and is not hobbled by Rightwing opposition to the extent he can't enact his agenda.
Carter had absolutely no corruption. He was replaced by the most corrupt administration in history - until that is the Bush Administration.
Like Gore's defeat, Reagan and his economic philosophy taking root for 25 years were the two biggest disasters ever to befall this country because it set us on a course of inevitable self-destruction and the demise of The Middle Class and social justice begun by FDR.

[billw8017]

It is good to see somebody praise Jimmy Carter's Presidency. I think he overdid the anti inflation thing when he supported Paul Volcker, but he saw a problem and he took care of it. We are all concerned whether Henry Paulson is actually taking care of our solvency problem or just blowing resources that could be better extended elsewhere.

Obama seems ready to confront inflation the way that Carter's Volcker confronted unemployment; that is, let it happen and bull on. I think that was Carter's mistake.

[SOLERSO68]

I really wax nostalgic about carter. how naive we were then. well its taken 30 years of brutal republican economic sodomy but I think we understand a bit more now than we did then. Like gas prices. I dont think opec wil impose any embargoes soon, but we need to move away from oil anyway. we should have back in 76, but if carter had tried it then, he probably would have been assasinated. Inflation?? we're gonna wish inflation was our biggest worry real soon. yeah those of us old enough to remeber carter are wishing we could have the chance to do 1980 all over again i can tell you, and send ronald reagan back to santa barbara permanently.

[mattfiller]

Carter did try to move away from oil - as did Ford (I was a summer contractor in Ford's energy department while I was a college student). That is a big part of why both Ford and Carter were defeated. The lesson learned in Washington was that an "Energy Policy" is a recipe for defeat at the polls - that is why Reagan took the solar panels off the White House roof. Since then the policy has been to talk down prices via the Saudis, until Bush/Cheney changed it to taking over Iraqi and Iranian oil fields (which worked a lot less well than the Ford/Carter policies). Even Gore, who probably would have brought back many of the Carter energy programs, didn't run on that issue.

[Smoothsail]

Are ther ANY cons to Obama becoming president?

[billw8017]

As a human being, President Obama will err. Choices will be made that many of us will think imperfectly calculated. The big pro is that Barack Obama is a hardworking and intelligent man. His campaign showed that he studied and learned some of the best methods of previous campaigns. His Presidency should be similar, and we can hope it is similarly successful. I know that I have written how he was lucky, but i never doubted that he was the better man, and we were lucky, too, when he won. We can hope that when he goes down the wrong path, he will come back out of any deadend or find the way through even if it is a little further than ideal.

[richardgordon]

I think Robert Borosage is absolutely right. I for one am not impressed with Obama's pick of Geithner as Secretary for the Treasury or his close affiliation with Robert Rubin. Both of these men may be brilliant in their own ways. And Robert Rubin, from my limited knowledge of his performance under the Clinton Administration was outstanding. But both of these men have a huge amount of baggage associated with the current financial crisis. Geithner is far too intertwined with the Bush Administration and the current Paulson Treasury team for my liking. Like Greenspan he has a conflict of interest to sweep the problems under the rug created by the Treasury's lack of oversight of the financial industry. As for Rubin, why is Obama taking advice from this man? He is the architect of both the reckless deregulation in the financial markets and was responsible for Citi-Group taking enormous risks to generate phantom profits so that he and other top executives could reap enormous bonuses. As far as I'm concerned Rubin should not be involved in the clean up of the financial mess he was responsible for creating. And yes, the Citi-Group bail out is nothing short of a total betrayal of the American Taxpayer. Who ever negotiated these terms should be removed from any further negotiations on behalf of the American Taxpayer.

[daddysboy]

This is Obama 1.0. No one should ever buy the first version; it's always loaded with beta parts. I'll wait till 1.1 comes out later in the spring or even 2.0 in the fall.

[gadfly55]

Obama is a lawyer, unfamiliar with the arcane logic of finance, and he can't solve this problem by edict. The saying in Ireland when asking for directions is "You can't get there from here". Which is where he is starting. He is not a person capable of radical and revolutionary initiative, and the American people are not capable of following any departure from the world as they have learned it. The reality of the world as it is now, of the dollar collapsed as the reserve currency, of financial markets in New York and London dysfunctional and untrustworthy to manage the money of the oil producers and manufacturers of Asia, will force the changes in the mindset of the masters of the universe such as Rubin and his acolytes. But this is too late to make the difference to the people who elected Obama to change the system. Little did they know, both him and his groundswell, that the storms ahead would force the pace and nature of change. This is not change we can believe in, but adaptation to catastrophe unimaginable.

[truthseeker7]

Good observations and good insight! This should get "interesting".