Robert Borosage writing on bailout in Huffpo: CAN'T GET THERE FROM HERE

[flpoljunkie]

Robert L. Borosage
Co-Director of the Campaign for America’s Future
February 10, 2009

CAN'T GET THERE FROM HERE

The Obama administration has made its first serious misstep. No, it wasn't the wooing of ingrate Republicans, or the dining with clueless reactionary pundits. It is much more significant. Faced with the failure of the Paulson-Bernanke banking bailout, the Obama administration has decided to double down. The new plan, described in broad outline by Treasury Secretary Tim Geithner on Tuesday, antes up another $1.5 trillion or more to keep the banks afloat. But it won't convince many that they are seaworthy.

The plan isn't likely to get the administration where it needs to go for two simple reasons. It is wrong about where we are starting from. And it is wrong about where we're going to. If you don't know where you are and don't know where you are going, it is very hard to get there.

The plan 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.

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http://www.huffingtonpost.com/robert-l-borosage/cant-get-there-from-here_b_165813.html