via Robert L. Borosage: Can’t Get There from Here.
Posted February 10, 2009 | 07:51 PM (EST) The Huffington Post
Timothy Geithner
The plan [(T)he new plan, described in broad outline by Treasury Secretary Tim Geithner on Tuesday] won’t admit where we are: the major banks in the US are insolvent. They aren’t addled by a temporary fever. They are broke. If they actually marked their toxic paper to the market price – where there is one – their losses would wipe out their capital, even including the billions kicked in by the government in the first round. Clearly, the Obama administration – like the Bush administration before it – hasn’t accepted that reality.
The plan won’t get us where we need to go: we need to restructure – and downsize – our financial sector. Its baroque excesses – billions in bonuses, golden parachutes, million dollar office renovations, $35,000 “commodes on legs,” $50 million private jets, legions of employees – were constructed atop a housing bubble that finally burst. Now the banks and financial houses must be downsized, chastened, and regulated. As President Obama stated, “the party is over.” But the administration’s plan envisions a restoration, not a restructuring. We don’t want to go there even if we could afford it.
Borosage offers little consolation and advice himself. All he has is that the banks are scary broke and let’s do something drastic and bold and stupid. He, like most Americans, are protesting and screaming that our banks are broke and it’s from jaw-dropping mismanagement and we should just let them all fail since they are so unseaworthy as he puts it. There is nothing wrong with the banks making a profit. I think that is what they are in business to do. I understand that they went all in on some bad paper, so let’s fix that part of it and maybe restore the Glass-Steagall Act, which separated commercial from investment banking, but let the banks fail is way over the top.
What if you read Huffington Post tomorrow and learned that Citigroup has failed, and Wells Fargo has failed, and Bank of America has failed? What kind of world-wide panic do you think this would cause? Dumb. It would be de-ja-vu all over again – 1929.
Borosage dissects the Treasury plan:
No new money from the Congress – surely a political reality with the rising popular fury at bailing out millionaire bankers – means that the plan is immensely complicated, combining guarantees from the Federal Reserve, small capital injections, inducements to lure private investors. But the whole point of the exercise is to restore confidence in the soundness of the banks. A jerry-built complicated package only makes everyone nervous that the whole contraption won’t hold up.
How can Obama get back on track? The plan does have one potentially redeeming feature. It pledges that any bank requesting federal assistance will have to undergo what it calls “a stress test,” a detailed assessment of the value of its holdings and liabilities. This is the first thing the FDIC does when it takes over a bank verging on collapse. An honest assessment allows the government to decide whether the bank is salvageable or not. (It is aided in this process by getting rid of the old managers who have a direct interest in covering up the depth of the hole they are in)
(Emphasis mine)
None of this is Obama’s doing. Look – we cannot let the banks fail. There is precedent for the direction Obama is going and it worked before. (Savings and Loan) How can you “restore confidence in the soundness of our banks” if we create a world-wide economic collapse by letting the banks fail? That’s stupid. The problem is complex and nuanced, so must the recovery plan be.
Back on track? When did Obama get off track? 20 days. He’s been in office twenty days. Borosage talks like Obama has been there for the last eight years. That was Bush. Remember the guy who caused this mess? I guess it is easy to forget, I mean, after all, twenty days is a long time! Back on track. Jeez. He’s barely showed us which track he’s starting on.
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