Monday, February 16, 2009

Not Wise Enough

Robert Kuttner is also very skeptical of Tim Geithner:

Even more difficult will be the politics and economics of fixing the banking system. A surprisingly broad consensus of experts agrees that sooner or later, government will need to take the large banks into receivership. And better to do it sooner. The money-center banks are insolvent, to the tune of somewhere between one and two trillion dollars. Treasury Secretary Tim Geithner's strategy is to disguise this reality, in the hope that "private capital" - meaning hedge funds and private equity companies - can be enticed into buying toxic securities, and getting them off the books of banks. Geithner even proposes to have the Federal Reserve lend them the money.

But Geithner has not solved the problem of how to price these toxic assets. And unless he proposes to further subsidize speculative investments by hedge funds, the problem is insoluble. The longer government delays recognizing the insolvency of the banks and the need for a full government takeover, the longer the credit system stays frozen and the deeper the toll on the real economy.

Geithner is still operating according to the playbook of former Treasury Secretary Henry Paulson, who lurched from one failure to another. Geither made the transition from junior member of Paulson's team to senior adviser to Obama. But he has not revised his understanding of the problem. The time when the old banking system could just be propped up with more public money or cheap interest rates is long past.

Obama is being too Clintonian in all this. Too wonky and not wise enough. Come on, Barack! Use that superior judgment that God gave you, or at least I thought he gave you. Get some better economic policy advisors, or you're going to be politically up a creek without a paddle. And then Boobus Americanus will give the Republicans another chance, and then we will be totally screwed.

Or is that just our destiny, the providential consequence of our sins?

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