The enormous complexity of the economic mess that we are in makes an incredibly smart man like President Obama understandably irritated with people who want to simplify everything down to a quick either/or equation. I understand that, and am sympathetic to the overwhelming swirl of nuance, subtlety, ripple effects, and unintended consequences inherent in every Presidential decision when the stakes are this high.
Sometimes, though, you just have to make a basic "gut check" decision to go down one basic path or another. To his enormous credit, that's what Obama did on the economic recovery bill, his budget, and his framing of the health care, energy, and education issues: he decided to go big, bold, and progressive in all of those areas.
Now he has to do that on the issue of these big bank and insurance company bailouts.
Due to the overwhelming public backlash at the AIG executive bonuses, the federal government will write new rules into the contract for the $30 billion they are about to give AIG:
[T]he administration would use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG's contract. The idea: to ensure no government money goes toward paying financial products division bonuses and that the cost of bonuses already paid would be recouped for the taxpayer.
However, the official said, Treasury has determined there is no way the government can actually extract the money from the individuals who received the bonuses.
This isn't nothing, but it still raises several questions, all of which come to point at Larry Summers and Timothy Geither:
Why weren't these rules written into the AIG contract in the first place? Geithner is in charge of that department, both as Treasury Secretary now and as the backer of the original AIG bailout when he was head of the New York Federal Reserve. Given that he was in charge of both AIG bailouts, why isn't he taking a lot more of the blame for this? More than anyone else in the government, Geithner could have prevented these bonuses. He failed.
Further, given that we were promised improvements in TARP under the Obama administration, why did it take a public outcry to actually improve these contracts? Larry Summers sent a letter that dissuaded Senator Chris Dodd from passing legislation to legally mandate improvements TARP. Given the promises that were made, why aren't there guarantees against this sort of excess in all TARP contracts written by the Obama administration? Larry Summers promised us there would be. He failed. Maybe its time for the "very severe hostility" Chris Dodd had threatened?
Why isn't everyone at AIG involved in the scandal about to be fired? We own 80% of the company, so we should be able to hire and fire people, right? And even if we can't just hire and fire people, we can apparently still change the contract. As such, why can't we make firing people involved in the scandal conditions in the contract? Everyone involved in this should be fired. They took $170 billion in government money than used it to line the wallets of already wealthy employees. Fire them now.
Finally, there is a fairly obvious legislative solution that will allow us to get the money back: just pass a law requiring a 100% tax on bonuses paid to employees at companies that have received bailout funds. In fact, Representative Carolyn Maloney is about to introduce a version of said legislation. In the current political environment, where only 14% of the country opposes giving back these bonuses, it probably has about a 99% chance of passing. As such, why do Summers and Geithner keep saying there is no way to get the money back? Clearly, there is a way. Are they lacking in imagination, or are they protecting the executives?
I am getting really sick of Geithner and Summers. If they were serious about fixing TARP, then conditions against employee bonuses would already have been in the contracts they wrote (Geithner) and promised us they would write (Summers). If they were serious about punishing the people involved, they would include requirements to fire those people in the new contracts (which they are not talking about doing), and they would not have incorrectly stated that there was no way to get the money back (they would have at least said they were looking into it).
It is becoming hard to avoid the conclusion that Geithner and Summers are working to protect the Wall Street executives at the financial institutions that are receiving TARP money. Its either that, or they are demonstrating a lot of incompetence. No matter which is the case, I have created a petition asking President Obama to replace Geithner and Summers on his economic team. We need people who are serious about changing TARP to be running TARP. Geithner and Summers ain't it.
Excellent news from the NYTimes the other day: banks which are getting nervous about pesky government oversight are starting to ask to return government bailout money. As I wrote a while back in a fit of outrage when news reports indicated that Geithner wanted to go down the same sorry path that Paulson had been going down- handing government money to bankers with no strings attached to make sure they weren't just pocketing it while doing nothing for the economy- I think that if bankers, don't want accountability, they shouldn't take our money. If they are in such bad shape that they have to take our money to survive, there needs to be tough accountability on how they do business.
I also fundamentally agree with David Sirota that if these corporations are too big to fail, then they are too big to exist: a proposition also agreed to by the populists and progressives of the late 1800s/early 1900s, by Abe Lincoln, by Teddy Roosevelt, by FDR, by Harry Truman. Progressives of all eras have understood that corporations that grow too enormous threaten our economy and our democracy, and should be woken up into smaller entities that can't do so much damage when they are mismanaged. The era of bank consolidation has to come to an end, and these monsters need to be broken into smaller companies just like Standard Oil was in the early 1900s.
Ironically, some of our tax dollars were actually used by these bank conglomerates to buy other banks, instead of, say, giving out loans to consumers and businesses trying to buy things or make investments that would create jobs.
The mess these big bankers have created for our economy is stunning, and it will take many years to work our way out of it. Every day dealing with the wreckage of all this is going to be harrowing. But we can start by doing what our progressive forbearers did: breaking up the big financial trusts, regulating them with vigor, holding them accountable. When a class of people has screwed up as terribly as big bankers have, we should take away their power and watch them like hawks for the rest of their time on this earth.
Thousands of depictions of George W. Bush as a chimpanzee were floating around the media for 8 years, and nobody noticed the racial implications of any of them!
Most of the people demanding that the Post fire Sean Delonas probably don't even know that his cartoons run on Page Six, and mostly cover sports and entertainment, and only what you might call the most grotesque elements of national politics, like the economic stimulus designed by Larry Summers and Tim Geithner.
Personally, I think of Summers and Geithner as goddamned blood-suckers and chumps, but now that criticism of the ridiculous tax-cut stimulus has been rebranded as racism, I guess we can all forget about the millions of jobs and houses that will be lost because of absurd concessions to Republicans, and go back to our usual media-induced stupor until another wave of phony outrage or phony concern or some other form of news about nothing comes out of nowhere and distracts us again.
It only makes the whole stupid mess even stupider that it coincided with the 8th anniversary of the great Chandra Levy super-spectacle that distracted almost everybody from the stolen Presidential election in 2001.
So now that a cartoon from Page Six of the New York Post has crowded any criticism of the brain-dead stimulus out of the news, I want to add my little voice to the chorus of praise for all the unscrupulous hustlers who distract us from unpleasant realities year after year, by updating one of Sean Delonas' cartoons from a few weeks back...
Sometimes lost in all the anger and irritation over the things that we don't like about this Economic Recovery Act, and over some bad decisions that seem to be being made on the banking bailout, is the fact that some really big things are going on right now for the good. We had to make some really irritating compromises to get the recovery bill passed, and it's too small, and we sure didn't message it well at times. But wow: almost $800 billion dollars going mostly into great investments into the economy for the poor and middle class, and tax cuts targeted vastly more towards middle income people than rich people. The size, the scope, the kinds of investments- health care, state/local fiscal relief, universal broad band, school construction, infrastructure, health care, green jobs, poor people's income support- it really is historic. Let's get this thing passed.
And let's stop for a minute after this gets passed, and take some satisfaction: The Lily Ledbetter is law. S-CHIP, including children of immigrants, is law. About a dozen outstanding executive orders on civil liberties, labor, reproductive choice, regulatory issues are signed and in place. And now an $800 billion jobs bill, targeted mostly to progressive things, hopefully is about to become law.
Geithner and Summers are still pissing me off. We have a long way to go on a whole lot of issues. But even so: wow.
President Obama's economic stimulus has lost so much weight in the last few days that dieters everywhere are flooding Congress and the White House with requests for information about the so-called "Ivy-League Diet," named after an association of degree-granting institutions in New England that granted degrees to President Obama and most of his economic advisers. Thanks to my new job as a busboy at Washington's exclusive Alfalfa Club, I was able to get the inside story from Tim Geithner (Dartmouth '83), Paul Volcker (Princeton '49), and Larry Summers (Harvard '82).
"Excuse my humble self for disturbing your Lordships," I groveled, "but would you please be so kind as to explain the "Ivy-League Diet" that I hear so much about on TV?"
Larry Summers graciously replied.
"It's very simple. We shit on the economy and you eat it."
"Harharhar!!!" said Paul Volcker.
"Harharhar!!!" said Tim Geithner.
And even my humble self joined in the merriment.
"Harharhar!!!"
"What are you laughing at?" said Larry Summers.
"Nothing, your Lordship," I replied. "Enjoy your soup."
Citigroup's position weakened, with its shares losing as much as 65 percent after the failed Wachovia deal amid a collapse in investor confidence -- precipitating another rescue attempt.
Again, Bair held out for concessions as the Fed and Treasury sought to shield Citigroup from losses in its holdings of toxic assets. Bair insisted on getting preferred shares for the FDIC in the New York-based bank. She also demanded that Citigroup agree to implement mortgage modifications according to a model developed by her agency.
At one point during a Nov. 23 Fed board meeting about the Citigroup rescue, Chairman Ben S. Bernanke stepped out to take a call from Treasury Secretary Henry Paulson. Returning a few moments later, Bernanke told his colleagues that the secretary was still locked in negotiations with Bair, whose demands were delaying the deal...
On other issues, too, Bair has stepped out in front of her Bush administration colleagues.
As the mortgage bust deepened, Bair repeatedly pushed Fed and Treasury officials to boost aid for homeowners.
In 2007, Bair told lawmakers the Fed should use its authority over home-loan standards to tighten oversight and crack down on the practices that contributed to the subprime mortgage mess.
Ian Welsh discusses this in greater detail. Bair is a principled regulator who stood up against the good ole boys club. It's not a good sign that the new Treasury Chief is trying to ax her for that.
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