The Obama camp’s refusal to deal with the zombie banks is both maddening and infuriating – and Treasury Secretary Tim Geithner is proving to be a shill and a disgrace.
"Wall Street, I think, is hoping for an easy out on this thing and there is no easy out,” President Obama said in an ABC news interview this week.
No, Mr. President, YOU are the one hoping for an easy out... and already acting like a lame duck after a scant few weeks in office... with your utterly infuriating refusal to tackle the problem head on and nationalize these damn zombie banks.
In my Jan. 27 rant, “Fire all the Bankers – and the Shareholders Too,” I outlined what a forceful and decisive President Obama would have said.
To quote from the piece, this is the gist of what we should have heard from the Obama administration (in slightly more dignified tones of course):
Okay, we’re done screwing around. No more of this drip, drip bailout funding for drips. The U.S. taxpayer already owns these skank-a-riffic banks – they’d already be zeroes if not for our backstops – so now we are simply going to formalize that fact...
But did we get anything like that? No. Instead we got an awful, sound-bite-filled “plan to make a plan at some point in future” that cast far more doubt than light on the whole stupid exercise.
In its excuse for a defense, the White House keeps whining about how the situation is “complicated.” The situation is only complicated, Mr. President, because your team refuses to make the clear choice and nationalize.
Check out this graphic from the Econompicdata blog to see how ludicrous this whole fiasco is.
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Treasury Secretary Tim Geithner wants to throw $500 billion more at these zombie banks – for starters – when the combined market cap of the big four is less than half that sum (and shrinking further as I write).
And to add insult to injury, that combined market cap would have long ago hit ZERO if not for the implied expectations of a bailout in the first place!
So let’s recap. In any type of free marketplace, these rotten zombie banks would already be zeroes – failed under the weight of their own folly. They only breathe on because we have them in the government version of an iron lung.
And now the plan is to throw hundreds of billions more at the problem, in a way that will admittedly do next to nothing to solve the problem, because it’s “complicated”... all just to avoid use of the “N” word (nationalization).
Look, I’m no Marxist. I don’t yearn for a grand socialist solution. But this half-in, half-out approach to our rotten bank problem is absolutely idiotic. It’s the worst of all worlds. It’s expensive as hell, it wastes time, and it isn’t working.
And we’ve gotten to this place because the Obama administration is afraid to do the hard thing.
Tim Geithner Is a Shill and a Disgrace
Oh, and we may also have gotten to this place because our Treasury Secretary still thinks he is president of the New York Fed (Geithner’s old job).
As head of the Federal Reserve Bank of New York, Mr. Geithner essentially acted in the best interest of the banks. The banks were his top clients, you might say. Their interests were his interests. Their peace of mind was his peace of mind.
Now that he is Treasury Secretary, the banks are no longer Mr. Geithner’s clients – American taxpayers are – but Mr. Geithner is sure as hell still acting as if his loyalties haven’t changed. This excerpt from a New York Times piece earlier this week made me furious:
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.
Mr. Geithner... successfully fought against more severe limits on executive pay for companies receiving government aid.
He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.
Can you believe that garbage? Geithner, this dyed-in-the-wool product of Wall Street, who will no doubt go back to a cushy gig on Wall Street when his stint in Washington is done, is willing to put our country’s recovery at risk in order to please his true masters.
This jerk would rather bend himself into a contortionist pretzel than consider doing anything that would displease his pin-striped pals. We saw the evidence of this on Tuesday, with the “complicated” plan-that-is-no-plan-style bailout designed to leave all shareholders and executives intact.
How many more foxes do we have to let into the henhouse? Didn’t we already try this with our last Treasury Secretary – an ex-head of Goldman Sachs? We were supposed to be enjoying CHANGE by now... so WHY is Team Obama letting itself get rolled like this? (Don’t answer; it’s a rhetorical question.)
Later in the same NYT piece, David Axelrod (Obama’s personal Karl Rove) played nice and said even though he disagreed at first, he was “ultimately satisfied” with the Geithner-tilted outcome.
I highly doubt it. Axelrod’s about-face just sounds like an extension of the Obama camp’s natural campaign discipline. You have your knock-down-drag-out fights behind the scenes, but when a public decision is made, everyone comes together in support of it.
In reality, I bet Axelrod privately wants to ring Geithner’s neck right about now... as well he should. Geithner is putting the boss’ whole presidency in jeopardy.
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Still Not Serious
President Obama’s “floating above the fray” attitude looked good during the campaign. But now, as Mr. Obama lets morally compromised team members make a giant hash of things, in service to a hidden agenda that stinks to high heaven no less, his detachment is starting to smell like naïveté... or incompetence.
Martin Wolf, respected economics commentator of the Financial Times, agrees. You may take me as a tainted vessel, given my propensity to lose my cool at times – but consider what the measured and sober Mr. Wolf has to say:
What is needed? The answer is: focus and ferocity. If Mr. Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.
Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.
The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr. Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.
If Volcker Quits, We’re in Trouble
What’s truly maddening is that it didn’t have to be this way. Or maybe it did, who knows... the only thing that’s clear, for now, is that the cynics have been proven right with a vengeance thus far.
Instead of clear-eyed assessments and bold action, we get foot-dragging and back scratching. Instead of tough decisions, we get “complications” and excuses. And instead of gravitas from the hill, we get meatheads like Senator Chuck Schumer smirking that the American people “really don’t care” about pork.
The only Washingtonian I still have a modicum of respect for at this point is Paul Volcker – the tough-minded ex-central banker who broke the back of inflation in the early 80s and currently serves as an advisor of sorts to the President.
Volcker may be the one serious guy left with a connection to the White House. He’s the canary in the coal mine... if he quits in disgust, look out below.
Warm Regards,
JL
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