Nothing is more crucial to global economic recovery than the reinvigoration of the American financial system. Over the years since World War II, the United States has become the home of the world’s financial engine, and when America’s banking giants seized up, the world’s economy shut down.
As you probably know, the capitalist financial system grew like Topsy over many centuries, and there’s no point in trying to make sense of it. Some regimes have tried to replace it with more logical systems and (so far) all have failed. So I won’t waste your time suggesting better ways to fund growth and encourage thrift. It is what it is, apparently. And President Obama is going to have to deal with what it is – not what it should be.
Based on this reasoning, you can understand why he has not made a clean sweep of the mess he inherited from President Bush and is trying to restart the existing system. Still, pouring good money after bad might not be the best way to go.
The Congressional Oversight Panel, appointed to monitor the bailout program, has released a report suggesting that getting rid of top executives and liquidating problem banks might be a better way to solve the crisis.
Treasury Secretary Timothy Geithner is continuing the Bush approach of injecting capital into banks. He plans to remove up to $1 trillion in those “toxic” mortgage-based securities from their balance sheets through public-private investment partnerships. The government is also working to unfreeze credit markets through a Federal Reserve program that provides loans to some investors.
The panel, headed by Harvard Law School Professor Elizabeth Warren (photo at right), reported that “allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal.” The panel did not endorse an alternative approach “at this time,” but I think the Obama Administration would be wise to take its findings seriously.
Curiously, the two Republican panel members, former New Hampshire Senator John Sununu (photo at left), and Representative Jeb Hensarling of Texas (photo below, right), dissented. It is tempting to conclude that Sununu’s stance was influenced by his recent appointment as a director of ConvergEx Holdings LLC, a company associated with the Bank of New York Mellon Corp. That bank was one of the institutions selected by the Treasury Department last fall to receive a bailout.
But Hensarling’s dissent is more mystifying. He led House Republican efforts to oppose the $700 billion financial bailout last fall so you might think he would welcome the oversight panel’s findings. My guess is that his dissent is simply part of the Republican Party’s overall strategy of obstructionism. But it is almost impossible to know why politicians do anything. There are so many hidden motives and connections involved – especially when you’re dealing with billions of dollars.