Sunday, April 12, 2009


Obama Stakes His Fortunes on Failed Banksters: Jonathan Weil -
"Why doesn’t the Obama administration force insolvent banks and insurance companies to come clean about their losses first? It’s the “why” that’s so vexing. The who, what, when, and how are mere details, by comparison.

More than anyone else’s, it should be in Obama’s political self-interest to accelerate the worst of the financial crisis and get as much of the inevitable pain behind us as quickly as possible. Every day he waits is one less day he will have between the time we hit rock bottom and the next election. And yet, Obama and his minions are doing all they can to delay the reckoning, which only will make it worse. . . .

six months into the government’s Troubled Asset Relief Program, his administration’s approach to the financial crisis is largely indistinguishable from its predecessor’s. The only objective, it seems, is to buy time, in hopes that an economic recovery somehow will materialize and lift the financial system back to health.

The Obama administration’s “strategy,” for lack of a better word, is to keep plying broken financial institutions with as much taxpayer money as the government can print. And so the government will keep subsidizing failed mega-banks indefinitely, rather than placing any into receivership or liquidating them. . . .

why don’t Obama, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke force the banks to write down their troubled assets first, as a condition of government assistance? We can only speculate, because their explanations so far have made no sense.

Perhaps they’re scared the markets would panic if large, insolvent financial institutions started telling investors just how undercapitalized they are. There’s the distinct chance some of Obama’s advisers are beholden to failed banksters, because they used to work for them and may want to do so again someday. . . .

There also could be a manpower problem. The government might not have enough employees to seize all those sickly banks and supervise the process of winding them down. Probably, it’s some combination of those and other factors.

Why else would the Treasury tell the 19 biggest U.S. banks to undergo “stress tests” of their financial health, and then put the banks in charge of performing the tests on themselves? Those reasons also might help explain why regulators pressured the board that sets U.S. accounting standards to weaken the rules on mark-to-market accounting, so the banks could hide their losses and show more capital.

Whatever the case, as long as the government refuses to remove the cancer of zombie banks from our financial system, there’s little hope the U.S. will return to robust economic growth anytime soon. And the longer our wounded banks are allowed to stagger along with no end-game in sight, the greater the risk for Obama that voters will conclude he’s as responsible for blowing the cleanup as others were for causing the crisis.

He’d better act soon. Time may not be our side any longer."

I've quoted this column at length, because it is such a concise, but complete statement of the skepticism about Obama's policy vis a vis the banks.

My own view is that Obama is guided by a political, not an economic necessity: a political necessity to accommodate the political power of the plutocracy. Obama's political power rests on having leveraged Bush's failures to pry a significant fraction of the corporate and financial elite away from the Republican Party. The shift of these "centrists" into the Democratic Party marked out money shift, which presaged the electoral shift of the last election.

Now, he must tread carefully, if he is not to lose them, while they are still politically powerful.

As the economic crisis drags on, the country, itself, may shift left, making it more practical to pursue more radical measures. And, more radical measures, taken in a timely way, may well drain the corporate plutocracy of a measure of its power.

We'll see how that goes.

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