Six weeks in, with the Dow falling precipitously, the boss has questions about Obama's priorities:
Obama has spent far more time publicly defending his stimulus package, and touting his health care, energy, and education proposals, than explaining how he's going to deal with the banking crisis. Yet virtually all serious observers--whatever their politics, whatever their economics--agree that the financial crisis is the central crisis we face, that the core of the problem is the banking system. But the administration has treated this as merely one "leg" of a three-legged stool (the other two are stimulus and housing), and the least urgent one to fix at that. And now Obama wants to focus on "long term" issues like health care and energy and education--while not showing any sense of urgency about the banking crisis. Instead, the Obama administration throws more money at Citi and AIG. This at best simply puts off the day of reckoning (but at some considerable cost); at worst, Obama's Treasury is fiddling while Rome burns. And it's not as if there's that much disagreement across the political or economic spectrum as to what has to be done; everyone agrees the toxic assets have to be separated from the rest. And the disagreements about how to do this seem to some degree semantic ("nationalization" followed by selling off good assets vs. setting up a "bad bank" vs. public-private partnerships to buy and manage toxic assets, etc.). What spooks the markets, I believe, is that the Obama administration has shied away from embracing any solution. Under his administration, has a single toxic asset actually been seized, separated, sold, or de-toxified? I don't think so.
Read the whole thing, here. As if on cue, here's Tim Geithner testifiying before the Ways and Means Committee today. The Treasury Secretary- the man in charge of the repair of the underpinning of our entire economy-spends the better part of his answer talking about, what else? The virtues of Obama's health care and education plans.
Financial experts are beginning to warn that all the pussy-footing around a politically unpalatable solution is
prolonging the crisis:
Geithner also gave no indication that he would act quickly to dismantle the weakest of the banks, a move that Joseph Mason, a former bank regulator who teaches finance at Louisiana State University, says he should take now. Japan prolonged its credit crunch and recession for almost a decade before it finally nationalized two of its biggest banks, the Long-Term Credit Bank of Japan and Nippon Credit Bank, in 1998. "The key to all our problems is the zombie banks," Mason says. "We're giving them money, which is not going to solve anything. We're repeating the mistakes of Japan, which wasted a decade by not moving decisively against its zombie banks."
But look on the bright side. The administration is making some serious, long-term plans on community college scholarships that they know you're gonna love. Geithner can tell you all about them.