The Obama administration has demonstrated admirable cojones in dealing with Detroit. It is taking a hard line that actually has a chance of producing a viable and sustainable U.S. auto industry -- and it is handing the bill for the existing wreckage to those who deserve to pay it: Current shareholders and bondholders.
Which makes the administration's wimpiness in dealing with Wall Street all the more bizarre.
Why does the Obama administration refuse to hand the bill for our banking catastrophe to the folks who deserve it -- bank bondholders and shareholders? Why do taxpayers have to pay those costs, while we're spared most of the pain in Detroit?
This is the central mystery of the Obama administration so far, and it's galling that folks who claim to be all about "transparency" refuse to even address the question.
Since the Obama administration won't tell us what they are thinking, let's speculate:
* Steve Rattner (car czar) has the experience and balls to see the world as it is. Tim Geithner (Treasury Secretary), meanwhile, sees the world the way it was explained to him by self-interested Wall Street. Remember: Tim Geithner still thinks the problem is liquidity, not bad debts. Very few serious economists agree with him.
* Wall Street folks are just a heck of a lot more influential and cool in Washington than the dying moguls of Detroit. Rick Wagoner? He's from the midwest, for goodness sake. Off with his head.
* Tim Geithner has decided that seizing Citigroup, et al, will create the same havoc in the global financial system as the collapse of Lehman Brothers. Geithner got blamed for Lehman, so this fear is understandable. But it's misplaced. The seizure of Fannie, Freddy, WaMu, et al, didn't paralyze the financial system, and the orderly seizure and restructuring of Citigroup wouldn't either. A friend of mine describes this Geithner thinking this way (and adds the two theories that follow): "A professor of mine used to talk about overlearning: a housecat that steps onto a hot stove learns that stoves burn, not that hot stoves burn. Geithner learned that bankruptcies are to be avoided, not that disorderly bankruptcies are to be avoided."
* We are suffering from narrow-minded American exceptionalism, which enables three views: 1) lessons from other countries don't apply to the US; we're different; 2) nationalization is untested (because it hasn't been tested here); 3) the Geithner plan can work (even though it was tried and failed in Japan).
* The Obama administration still thinks Congress wouldn't support nationalization; hence the Enron-like financing of the Geithner plan, an off-budget, end-run around Congressional authority, using the FDIC.
Whatever the administration's thinking, it doesn't make sense. It's also not Obama-like. So let's hope the president will reconsider taking a harder line with Wall Street -- or at least do some more transparent communicating.