Must Read from Robert Reich on Geithner's Plan: It's Not Transparent and It's Still a Bailout

[flpoljunkie]

WEDNESDAY, FEBRUARY 11, 2009

Geithner's Plan: It's Not Transparent and It's Still a Bailout

Testifying for a second day before the Senate Budget Committee about the plan he sketched out yesterday to save the banking sector, Tim Geithner promised to inform Congress as quickly as possible if more taxpayer money is needed. He said a supervisory review of banks -- a so-called "stress test" -- would help determine that. It's likely the stress tests will show the banks are in far worse shape than Geithner's plan can deal with. But it seems doubtful Geithner will return to the well any time soon. Neither Republicans, Blue-Dog Democrats, or progressive Democrats like the idea of bailing out Wall Street -- and revelations about Wall Street's malfeasance, misfeasance, and just plain stupidity over the last few years are likely to multiply in the weeks and months ahead.

So far, the Geithner plan requires no new money beyond the remaining $350 billion Congress has already okayed to bail out Wall Street. But in truth, the plan assumes trillions more from the Fed, based on the Fed's seemingly infinite capacity to backstop almost anyone putting up almost any collateral. The idea is to lure private investors into buying up the banks' toxic assets, by having the Fed limit their downside risks. If private investors pay too much, the Fed picks up the tab.

Taken as a whole, this is hardly a model of transparency. To date, the Fed has already committed some $2.5 trillion to rescuing the financial system, yet no one outside the Fed knows exactly how or where this money went. The Fed is subject to almost no political oversight. Yet if the trillions of dollars the Fed has already committed and the trillions more it's about to commit can't be recouped, the federal debt explodes and you and I and other taxpayers are left holding the bag.

In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system. Those risks and costs should be put on the people who made risky bets on the banks in the first place - namely bank shareholders and creditors. Shareholders of the most troubled banks should be wiped out entirely. Bank creditors- except depositors - should take major hits. And top executives who were responsible should be canned. But Geithner and Bernanke don't want to take these steps for fear of spooking the Street. They think it's safer to put the costs and risks on taxpayers -- especially in ways they can't see.

Geithner's plan is better than the first Wall Street bailout but make no mistake: It's not transparent, and it's still a bailout.

http://robertreich.blogspot.com/2009/02/geithners-plan-its-not-transparent-and.html

[sandnsea]

1. Because anarchy is never desirable

So yes we are going to take the bath because in the long run, it's better than complete financial collapse.

And Robert Reich knows it and damn him for pretending otherwise.

[girl gone mad]

9. Yes, because the only alternative to giving the banks trillions of dollars..

with no oversight is anarchy.

It's one or the other. :eyes:

I'd laugh if I wasn't so sick of the straw men that Wall Street apologists keep building over and over.

[truedelphi]

11. Give her heck and I'll add my two cents as well

Some people just don't get that we can have a properly managed recovery or this monstrosity.

[liberalmuse]

2. I emailed the President twice today.

I hope that does not get me a restraining order. I asked that he nationalize the banks rather than throw a trillion down the drain right off the bat. The most respected economists are all saying the same thing on this. "Nationalize". Our banks are not viable. Sadly, I don't have much faith in Geithner's abilities.

[Skink]

3. A step towards nationalization is what Krugman called it.

These stress tests should reveal that nationalization is inevitable.

[sandnsea]

6. Or let people adjust

And prove to the right that everything possible was done, while giving people a chance to adjust along the way. If we nationalized the banks today, this country would go into complete meltdown. There are people who still believe the stimulus is a phony ploy to implement socialism. They're going to need to see for themselves a bit longer and this allows it all to sink in slowly.

[Teaser]

14. One: we will never use the word "nationalize"

and two: we will be nationalizing many of these banks.

This plan is exactly what you say it is.

[Thrill]

4. I thought there were no details?

Will people make up their mind?

[AtomicKitten]

5. Nobody expected the recovery plan to be pretty, and it's not.

I listened to a debate between some knowledgeable friends with opposing views on this issue, and the best thing I can ascertain (for whatever it's worth and probably not much because I am an admitted economic doofus) is that its patchwork nature allow flexibility to alter/adjust the plan moving forward. I suspect it will remain a work in progress, but Obama has gambled his re-election on its success and I'm willing to throw in with those odds.

[Sebastian Doyle]

7. Reich should be the one doing the job in the first place, not Geithner

He actually "gets it".

[ananda]

8. Agree. Reich is smarter than Geithner.

However, it's clear that almost all of
Obama's picks veer to the right and
the interests of corporations and
the wealthy.

[leftstreet]

10. N.A.T.I.O.N.A.L.I.Z.E.

It's coming. It's inevitable.

Why make more people suffer in the process?

NATIONALIZE

[GeorgeGist]

12. Encouraging theft-by profit ...

is what the spineless do.

[Teaser]

13. Don't worry, the plan is still a punt

It basically puts off doing anything substantive for a little while.

Soon Citibank will go under and they'll be forced to take it into receivership.

Same with many of the other "stress tested" banks.