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Tilting at Windmills

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February 10, 2009

WHEN GEITHNER WINS OUT.... There's nothing wrong with President Obama taking in competing ideas from his top aides. It's discouraging, though, when he considers the discussion, and sides with Tim Geithner over David Axelrod on the issue of financial institution accountability.

The Obama administration's new plan to bail out the nation's banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president's top political hands.

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

The entire NYT piece is worth reading -- though the details are subject to change once the final plan is unveiled -- and not all of the plan is discouraging. But this sentence helps underscore why Geithner shouldn't have won the internal argument: "[F]or all of its boldness, the plan largely repeats the Bush administration's approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets."

Steve Benen 10:25 AM Permalink | Trackbacks | Comments (29)

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So how does this, or the Obama administration's standing by Bush's "State Secrets" defense http://www.slate.com/blogs/blogs/xxfactor/archive/2009/02/09/state-secrets-still-secret.aspx
square with "I won't return to the failed theories of the last 8 years"?

Posted by: ericfree on February 10, 2009 at 10:31 AM | PERMALINK

The problem is not that Geithner won out; it is that Axelrod (who is not an economic expert) was the one fighting him. Where the hell is Volker in all this? Oh, yeah, he is being shut out by Geithner and Summers.

Geithner and Summers have to go. Obama is going to burn a lot of political capital on those fools and have nothing to show for it (and that is the best case scenario).

Posted by: Walker on February 10, 2009 at 10:32 AM | PERMALINK

No wonder David Brooks likes the Geithner plan so much.

Posted by: Colin on February 10, 2009 at 10:32 AM | PERMALINK

Connect the dots, la la la la, connect the dots, la la la la.

That's what the blogosphere needs to do right about now IMO. Connect the dots.

Connect this: http://www.dailykos.com/storyonly/2009/2/9/234340/6189/142/695504

With that.

The possibility of a massive bank/investment run is there. In fact, it's probably LIKELY at this point. Coddling investors/mass depositors, as distasteful it is for me personally, is probably the only way to prevent this. Thusly, everything that's happened since then.

Posted by: Karmakin on February 10, 2009 at 10:33 AM | PERMALINK

Steve, you mean what I blogged as Geithner kisses banks’ asse(t)s?

Disgusting. But not unexpected.

Don’t tell me you’re just waking up to Geithner and his Swengali puppetmaster Summers?

===

Ericfree, it doesn’t, of course. Just.Another.Politician.™

Posted by: SocraticGadfly on February 10, 2009 at 10:35 AM | PERMALINK

i honestly have no idea of what the best thing to do about america's banking problem is, but i do know that the idea that we take all the bankers out, line 'em up against a wall, and shoot 'em, satisfying as it may sound, is not a good one.

Posted by: howard on February 10, 2009 at 10:35 AM | PERMALINK

howard:At least, not until we can get the deadman's triggers out of their hand.

Posted by: Karmakin on February 10, 2009 at 10:37 AM | PERMALINK

I think we are all overemphasizing the importance of each initial action because of the perceived urgency of the situation.

Obama is in this for the long haul. It's hard for me to believe that increased oversight and restriction is permanently off the table just because Geithner "won" this one.

If it doesn't work as expected and Obama believes more oversight is needed, then he'll get it.

I suppose no one will believe he can get tough until he fires somebody, which he is certainly capable of and I'll bet he doesn't mince words about why. My guess is that Summers or Geithner have big targets on their backs. Whether they realize it or not is a different question.

We laugh at Biden's gaffe concerning "30% chance we get it wrong," but the sentiment is correct. In a situation where it is impossible to know what the correct course of action is (how many times did Obama say "uncharted" last night?) a good leader will listen to "experts" and give them the benefit of a doubt. He will also hold them accountable and raise the bar when things don't go as planned. This is the difference between Obama and Bush, IMO. Obama won't deny that things aren't going as planned and won't see changing course as a personal weakness.

Posted by: lobbygow on February 10, 2009 at 10:44 AM | PERMALINK

Watch the video in the article from TPM below.

http://www.cnbc.com/id/15840232?video=1027496846&play=1

This is how the majority of the country is looking at things (CNBC idiots). Unbelievable how not even one of them can see how stupid they are.

(Begin TPM post)
Surreal -- And Must-See
TPM Reader JC sent me to this interview with Nouriel Roubini and Nassim Taleb on CNBC. Here's what JC wrote: "In this clip, Nouriel Roubini and Nassim Taleb are still being treated as a circus sideshow by CNBC... They're predicting the end of finance, and offering the only clear path out of this mess that I've seen offered (with the knowledge to back it up), and CNBC keeps asking them for stock tips. It's ludicrous. Wall Street media -- CNBC at least -- doesn't realize how bad this is yet. They're stuck in a bubble where they think everything will go back to normal in a few months...."

He hits it spot on. These two guys are talking about a deep structural crisis in the world economy. And these CNBC yahoos can't stop asking for stock tips. Really surreal.

I'm watching it again now. This is a seminal piece of video. You have to see it. I'm not sure I've seen anything that captures -- albeit unintentionally -- the vast disconnect over what is happening today in the US economy.

Posted by: Bubba John on February 10, 2009 at 10:47 AM | PERMALINK

Nationalize the wealthy and you nationalize the bonuses.

Posted by: MattYoung on February 10, 2009 at 10:49 AM | PERMALINK

This is exactly why it would have been good to have progressives on his economic advisory panels

Robert Reich, Paul Krugman or Joel Stiglitz might give Obama better advic e than he's getting from Wall Street insiders

If we have a a 'massive bank run', the government should buy up the banks cheaply
If you're gonna have monopllies, let them be government owned monopolies that can be split into smaller components

Posted by: MSierra, SF on February 10, 2009 at 10:50 AM | PERMALINK

Progressives need to take President Obama at his word that we need to be the change we've been looking for. We can support and respect him without becoming the kind of fawning shills we mock on the other side.

When things like this happens, we need to provide the pushback, through the avenues open to us -- including direct response to the White House and pressure on our representatives in Congress -- that the President, however right he may be on the big picture, is wrong on the mechanisms in ways which we believe undermine the viability of his plans.

America wants major change whether or not the President is talked out of important parts of it by advisors that are too invested in the status quo. But, so far at least, this President isn't in the kind of bubble Bush was in, and so we need to let him no, at every turn, through every available means, when he seems to be failing to deliver the change we need and that he promised.

Posted by: cmdicely on February 10, 2009 at 10:51 AM | PERMALINK

Geithner is just another of those "Wall Street Masters of the Universe" who got us into this mess. My guess is that Geithner will get one shot. If he screws up, he is out. I think he knows it.

Posted by: Ron Byers on February 10, 2009 at 10:53 AM | PERMALINK

Who could have predicted that FUCKING NOTHING substantive would change at all?

Oh, I did.

Obama admin upholds Bush secrecy claims
http://www.newser.com/article/d95nrd1g0/appeals-court-decision-upholds-bush-administration-secret-surveillance-under-2007-law.html

Obama admin upholds Bush faith policies
http://www.newscred.com/article/show/title/obama-upholds-bush-faith-policy-498bc47dcf4dd/1126653

AND NOW THIS.

Meet the new boss, same as the old boss.

WTG America.

Posted by: getaclue on February 10, 2009 at 10:54 AM | PERMALINK

Walker is on to something. Read the NYT piece carefully. Geithner is the economist. This is a serious economic problem. Axelrod is the political advisor. I should hope the economist would win an argument over a political advisor about economic policy. The issue, it would seem, is how to explain this attempt to fix a very broken financial system in a way that is politically sellable.

The past 8 years have made us all think we know better than experts. We don't. There are some people in power now who actually do respect expertise, and I hate to say it, but I actually do have some confidence they care about an outcome that brings about a greater (though perhaps not the greatest) good. The experts do owe an explanation that is intelligible of why what they propose just might work to fix what is wrong, but for godssake, let the economists actually try to fix what's wrong rather than want what is was politically palatable. Rove was wrong not just about what public policy should be, but also about how to think of public policy.

Posted by: lisainvan on February 10, 2009 at 10:55 AM | PERMALINK

I incurred considerable wrath at a dinner party about a year ago from a hack at a prestigious university when I suggested, cynically, that an Obama presidency would not yield much change.

I can't wait to see that hack again.

Posted by: rrk1 on February 10, 2009 at 10:56 AM | PERMALINK

CM, Sam Stein DID provide pushback to Obama last night, who, IMO, fliat-out lied that he’d not heard about Leahy’s “reconciliation commission,” since the idea in some form has been afloat for six months.

He lied when he flat-out claimed Iran was building or trying to build a nuclear weapon, unless he has proof better than Bush’s in Iraq.

He fear-mongered on the economy, claiming we’re in the worst situation since the Depression, when, so far, we don’t yet know whether or not its as bad as 1980-82.

Funny; I didn't think you that naive.

Posted by: SocraticGadfly on February 10, 2009 at 10:57 AM | PERMALINK

Aaaaaaaaaaaargh.

After 8 years of bemoaning the ideological blindness of the Bush administration, and of mocking Bush for only being interested in "facts" that supported his position, do we really have to complain that a highly respected economist with intimate knowledge of the financial system won a fundamentally economic debate? That our "progressive" ideology didn't trump an actual understanding of how markets work?

Look, we all know executive pay is out of control. And we can all agree that it would be desirable to prevent abuses in the use of bailout funds.

From those principles, we have two choices:

1) We can examine how markets work and use a knowledge of economics to examine the impact of proposed rules, or

2) We can say that our interest in righting those wrongs trumps any actual expertise in the area and that we're pretty sure reality will morph to meet our needs.

Geithner "won" the debate by pointing out that severe restrictions on the use of bailout funds create two problems. First, because not all institutions will be subject to the rules, we we have two classes of institutions: those that took the money and those that didn't. The ones that did take the money will have less operating flexibility, which economics 101 will tell you translates to lower returns (lower risk, too, of course). In financial markets, that's the kiss of death, and those institutions would likely end up failing because they took the money.

Second, limits on executive pay mean that anyone who starts to do a good job at a bailout firm would be instantly poached, likely at 10x the pay, by non-bailout firms. Bailout firms' executive offices would become revolving doors until they ended up with an entire staff not competent enough to attract offers from competitors.

Now, these aren't my arguments, these are arguments from someone who's spent their life studying economics and the financial industry. If they're inconvenient and conflict with our ideology, I suppose we could always find out what Sarah Palin's up to these days.

Me, I'm just disappointed to see the left so prepared to give up on reality based policies when reality is inconvenient. I just lived through eight years of that crap!

Posted by: Brooks on February 10, 2009 at 11:02 AM | PERMALINK

SB wrote: "There's nothing wrong with President Obama taking in competing ideas from his top aides. It's discouraging, though, when he considers the discussion, and sides with Tim Geithner over David Axelrod on the issue of financial institution accountability."

Didn't we just go through a pretty disastrous 8 year period during which political assumptions trumped expert experience? Don't mean to be snarky but what message would O be sending if he allowed Axel to overrule Geithner on Geithner's turf? Executive compensation rules can be changed over the next year or so by Congress if need be. Right now we are probably much better served by convincing those who got us into the mess to smarten up and show us where the real problems are hidden. The bankers know full well how tenuous their professional careers are right now, give them a little time to get their personal lives in order as they struggle to bring order to chaos and a year from now we can do as a society what needs to be done. Think of it as Dirty Harry easing the hammer back into place rather than squeezing the trigger. Let coolness prevail.

Posted by: Bartender on February 10, 2009 at 11:04 AM | PERMALINK

socraticgadfly, i didn't watch the press conference, so i can't speak to your first two points, but yes, we are in the worst situation since the depression, and judging it only by the unemployment rate (whose definition has changed since 1981) is not a credit to you.

Posted by: howard on February 10, 2009 at 11:04 AM | PERMALINK

"[F]or all of its boldness, the plan largely repeats the Bush administration's approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets."
To me, the boldness comes in repeating the Bush administration's approach. You'd think they might have new ideas, but apparently Geithner simply proposes to go faster.

Posted by: Matt Browner Hamlin on February 10, 2009 at 11:15 AM | PERMALINK

Steve, your serious? "Geithner over Axelrod" Sorry, I'll take the guy that knows something about the banking system over somebody who knows how to run a campaign. As much as I appreciate some of the knowledgeable people commenting on Steve's blog, some of the comments suggest "ideologial blockage" that needs to be addressed. "Off with their heads" is not a realistic or prudent solution to the credit crisis. Merely because Geithner remains committed to a primarily market based solution does not mean he is corrupt or in the pocket of the banking industry. Paulson looks bad because the process wasn't transparent and because the banks were in a lot worse shape then anyone in the Administration realized. It seems like perfect common sensing not to flush the entire banking system down the toilet but fetch it some proper regulatory guidelines.

Posted by: Scott F on February 10, 2009 at 11:19 AM | PERMALINK

None of the monies W. Bush gave to the banks ended up in the hands of people who were going to spend it on consumer goods. Little of the money Obama's Sec. of Treasury wants to give to the banks will end up in the hands of people who will spend it on consumption. Transferring the nation's wealth to the wealthiest is a bipartisan policy that Obama knows will not hurt him electorally in a political system dominated by wealth.

Posted by: Brojo on February 10, 2009 at 11:24 AM | PERMALINK

To all of you supporting Geithner "because he is the economist" - PLEASE, PLEASE read the TPM post below and PLEASE watch the CNBC video.

http://www.cnbc.com/id/15840232?video=1027496846&play=1

(Begin TPM blog)
Surreal -- And Must-See
TPM Reader JC sent me to this interview with Nouriel Roubini and Nassim Taleb on CNBC. Here's what JC wrote: "In this clip, Nouriel Roubini and Nassim Taleb are still being treated as a circus sideshow by CNBC... They're predicting the end of finance, and offering the only clear path out of this mess that I've seen offered (with the knowledge to back it up), and CNBC keeps asking them for stock tips. It's ludicrous. Wall Street media -- CNBC at least -- doesn't realize how bad this is yet. They're stuck in a bubble where they think everything will go back to normal in a few months...."

He hits it spot on. These two guys are talking about a deep structural crisis in the world economy. And these CNBC yahoos can't stop asking for stock tips. Really surreal.

I'm watching it again now. This is a seminal piece of video. You have to see it. I'm not sure I've seen anything that captures -- albeit unintentionally -- the vast disconnect over what is happening today in the US economy.

Posted by: Bubba John on February 10, 2009 at 11:27 AM | PERMALINK

an Obama presidency would not yield much change.

Yes, because we know that systemic transformational change takes place in a matter of weeks.

NOT.

You can disagree with his actions, his theories or even his assumptions, but it is WAY too early to render a verdict on whether his presidency represents genuine change.

C'mon.

Americans are too invested in the idea of transformational leaders and "revolutionary" change. Revolutions don't change anything, they just turn the tables on who the "new boss" is. Real change is always evolutionary (even though it can be quite fast). I'm not saying Obama won't turn out to be more of the same, but there certainly is nowhere near sufficient data to make the pronouncement.


Posted by: lobbygow on February 10, 2009 at 2:06 PM | PERMALINK

The bankers know full well how tenuous their professional careers are right now, give them a little time to get their personal lives in order as they struggle to bring order to chaos and a year from now we can do as a society what needs to be done. Think of it as Dirty Harry easing the hammer back into place rather than squeezing the trigger. Let coolness prevail.

Could not have said it better.

Posted by: lobbygow on February 10, 2009 at 2:08 PM | PERMALINK

wow, that CNBC link that Bubba recommended is excellent - the first bunch of sense I've heard today. Fascinating not just for the interviewees' bear views, but for the rabid, adhd puppies behind the anchor desk, clawing at them.

Posted by: mmiddle on February 10, 2009 at 2:21 PM | PERMALINK
Yes, because we know that systemic transformational change takes place in a matter of weeks. NOT.

It did under FDR. If its not now, its a lack of will and/or desire—whether Presidential, popular, or both.

Systemic transformational change tends to happen in a series of rapid, large jumps with long gaps between them, not gradually.

Posted by: cmdicely on February 10, 2009 at 3:49 PM | PERMALINK
He fear-mongered on the economy, claiming we’re in the worst situation since the Depression, when, so far, we don’t yet know whether or not its as bad as 1980-82.

The jobs losses alone might not be worse than 1980-82, but the job losses are not "the economy". There is no single definitive unidimensional measure of the economy; any such characterization is necessary subjective. I think there is more than enough basis to say that the present condition (based on the length of the recession, job trends, observed deflation, and other indicators) is overall the worst since the Depression. But disagreement on this point isn't necessarily dishonest, as you would seem to suggest.

Posted by: cmdicely on February 10, 2009 at 3:54 PM | PERMALINK




 

 

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