Yes We Can…Continue the Bush Administration’s Horrible Financial Policies

Another (possible) tale on the perils of post-partisanship. It seems there is bad news from the new treasury secretary on the emerging policy on dealing with the financial crisis:

Mr. Geithner declined to provide any specific details or to address rising calls for the creation of a government institution to buy or guarantee the declining assets at several of the nation’s largest banks. He discouraged speculation that the plan would include the nationalization of some banks.

“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he said.

But bank stocks surged on hopes the government was moving toward creating a “bad bank” to purge toxic assets from balance sheets that are rapidly deteriorating as the economy worsens. On Wednesday, the Federal Reserve cautioned that the economy was still spiraling downward on many fronts.

Paul Krugman refers to the policy as Hankie Pankie II. The plan to create a bad bank doesn’t deal with the possibility of zombie banks, or moral hazard. It leaves the people who got us into this situation in charge.

Arthur Jensen Has Had His Say

Arthur Jensen Has Had His Say

The plan has led some responsible, well informed commentators to suggest Tim Geithner still thinks he’s working in the private sector:

I’ve been closely following the various (new & improved!) bailout plans for the big banks — from the modified TARP to the recapitalizations to the “bad bank” plan.

I’ve noticed something I find a bit disturbing about our new Treasury Secretary: He has not yet fully come to terms with his new job, role — and boss. Granted, he’s been in the job for only two days. But given the extraordinary circumstances the financial sector and the economy is in, it is important for the Treasury Secretary to get up to speed as soon as possible. [Snip]

No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!

Yesterday’s 13% surge in bank stocks is a clue as to what an obscene taxpayer giveaway this “bad bank” plan is — its free money for the firms that caused the problems, many of whom still have the same incompetent  management in place that caused the problem. Purging toxic assets from bank balance sheets, without punishing the management, shareholders and creditors of these institutions for their horrific judgment will only encourage more of the same in the future. Its moral hazard writ large.

Perhaps the emerging, elite oriented, hesitant position that seems to be gathering steam as administration policy is the result of a lack of Team of Rivals on economic policy.

he deep ideological divide that is emerging in the economics profession between those who worried about manic neoliberalism and Bob Rubin-style turbo-charged tilts towards an increasing unregulated finance industry is not hitting the Obama administration – because it is only hiring one side of that divide.

As best I can tell Obama is stacking his team with those who George Soros disdainfully calls “market fundamentalists.”

I sincerely hope that Obama’s famed lack of partisanship is something other than technocratic centrism. The current crisis requires strong leadership, not an outsourcing of the policy to the same group of policy makers that created the conditions for the original problem. We need more Robert Reich, Paul Krugman and Joe Stiglitz and less Larry Summers, Hank Paulsen, and Tim Geithner.

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Between the Disasterous and the Unpalatable

For someone who has been surviving on a diet of nothing but RSS feeds and political gossip for the past five years, it’s about damn time I started a blog. This is my official foray into the legendary gladiatorial arena of the political blogosphere, and I enter it with clear eyes and an open heart to all that I may encounter. I come with great respect for those blogging giants that tower above me and on whose shoulders I wish to stand.

It seems almost passe to start a political blog in 2008 – like starting a dotcom company in 2000, or dealing crack in 1989: you might still be able to catch on, but you’ve missed the heart of the wave. That said, I’ve been studying the political blogosphere these past five years, and I think I have come to understand the art. The key to political blogging is to hover somewhere between the partyline hack and the heterodox contrarian – to seem like you’ve outwitted the “conventional wisdom” in a thoroughly conventional way. I will admit that becoming a full-on, sweater wearing, jowl waggling political pundit is my dream job, but for now I retain an earnest belief in the communicative potential of new media. I want to enter into discussion with my fellow bloggers, and, god willing, a few readers (hi mom!).

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I’d like for this blog to get at both the importance and absurdity of politics. Bismark famously said, “Politics is the Art of the Possible,” but I think he may have been born a century too soon. John Kenneth Galbraith less famously said, “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.” I think Galbraith may have been the wiser.

In this vein, I think we stand at a unique, perhaps generational opportunity to transform the way America works, and reestablish our place in the world, and I certainly Hope That We Can. But I think it’s important to recognize this moment for what it is, and to seize it before it passes. These changes will require real leadership from our political class, even in the face of countervailing incentives and established interests. It will not be easy.

Yes we might!