We tend to be over-focused in our politics on publicly visible policy-executing personnel rather than the philosophy and intelligence guiding those people, which hopefully reside in the decisionmaker to whom they report. In the case of Timothy Geithner, that's Barack Obama. The media and the right-wing don't give two cents about Geithner. It's Obama they've been after -- the right-wing to destroy him politically, and the mainstream media to chronicle the carnage and pick over the carcass. It's no accident that a media star like Arianna Huffington joined other on-screen avatars of liberal dogmatism in wanting to heave Geithner over the side, once the vultures appeared to be circling him. Better to burnish their reputations for leading the pack than having tediously to defend the president's political flank.
But once Geithner's plan was actually unveiled, the stock market promptly went up like a rocket. So does that mean Wall Street suddenly loves Obama, as liberals like Arianna were deserting his Treasury chief? No, and here's why: Stock traders -- who aren't exactly political geniuses -- had been in a state of nervous anxiety about Geithner's plan for weeks, fanned by negative media and Republican distortions. On Monday they read the plan, realized it had a chance of working, and were deliriously relieved (Rush Limbaugh may want a depression, but the business community really doesn't). Here's what Steve Pearlstein, an often contrarian and independently thinking financial columnist for The Washington Post had to say, in part: (http://www.washingtonpost.com/wp-dyn/content/article/2009/03/23/AR200903...)
...the plan looks to me like it has a good chance of bringing significant amounts of private capital back into the financial system and relieving banks of some of their worst assets. On first blush, the Geithner plan looks rather complicated, but its general design is rather simple:
The government will go in as partner with private investors in newly created investment vehicles that will compete to buy up loans and securities backed by loans that banks want to sell in order to strengthen their balance sheets. As with most investment funds, this public and private equity or risk capital will be supplemented with additional funds that will be borrowed from Treasury, the Federal Reserve or from private investors who will receive a government guarantee that their loan will be repaid.
If the investments wind up making money, the profits will be split with the government in the same proportion as the equity that was put in. If the funds lose money, the initial losses -- roughly the first 15 cents on the dollar -- will be borne in the same proportion by the government and the private investors. Any losses beyond that will be borne by the government.
In the meantime, the banks will be able to strengthen their balance sheets in ways that will allow them to attract new private capital from investors who no longer will worry about the bad loans on the banks' books. They will also have the cash from the asset sales with which to make new loans...
The blogosphere was full of [Paul] Krugman-like criticism of the Geithner plan yesterday, with some complaining that it would be a windfall for hedge funds and other private investors and others arguing that it would fail to attract private capital. It's hard to see how both could be true...
Krugman's assumption...is that the current, depressed market prices for loans is the correct price, from which he jumps to the conclusion that all big banks are insolvent and need to be nationalized. But even a casual observer can see that these markets are broken not simply because many loans are bad, but because of a lack of investment financing. It is the interaction of the two problems -- in econospeak, solvency and liquidity -- that has caused the market to break down and prices to collapse.
As for the nationalization mantra, it's hard to see what that would accomplish. If the government were to take them over and assure depositors and creditors they would be repaid in full -- which is what you need to do to avoid a collapse of the financial system -- then there is little effective difference from a plan designed to rid banks of their bad assets. Nationalization doesn't make the bad loans go away -- it simply moves them from the banks to the government, with the government on the hook for any additional losses.
Pearlstein is paying attention to the substance of what the Obama Administration is going to do, not the theatrics of the surrounding political culture. From both the right and the left, most of the denizens and purveyors of that culture are assaulting Obama's plans and programs because they don't mirror their ideological preferences or they simply want him to fail politically. Unlike Bill Clinton, who habitually divided Solomon's baby and split the differences between his supporters and his opponents in order to cut deals he could celebrate as political achievements (politics being his arena), Obama is engaged in the art of what's politically possible without sacrificing the substantive core of what's needed to resolve the crisis at hand, in order to pave the road to change (the real world being his arena).
Obama is not trying to pull the rabbit of utopia out of the hat of economic disaster. He knows that that would be a bridge too far. Rather he's trying to quell that disaster so that political space remains in which to accomplish what he promised to do in his campaign -- to take the country in a substantially new direction in its economic conduct, its social fairness, its role in the world and, yes, its political culture.
1 comment:
It's interesting - there's some talk out there that Obama is actually a bit of a sucker being led around by his economic advisers. That they're actually the ones in charge and he's just trusting them to do the right thing. I don't necessarily agree with that, but Geithner is a political animal in his own way. He's gathering power.
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