The Obama isn't doing itself any favors by sending its increasingly ineffectual Treasury Secretary, Tim Geithner, out to whine that he can't do anything about the huge bonuses AIG is paying out with taxpayer money because there are contracts. I don't see the same sense of helplessness coming from the Administration when the contracts belong to auto workers in Detroit; perhaps because unlike greedy AIG executives, the UAW actually made contract concessions in an attempt to help the companies for which its members work.
When I accepted my current job, there was a big overseas planned, one which was cancelled because of the need to keep costs down. Not for one minute did I feel it was unfair that I wasn't going to be able to take this nice trip at company expense; nor did anyone else in my department. We were happy to do this little bit of belt-tightening, and it paid off in company performance for the fourth quarter. The idea that in this job environment, AIG is somehow being blackmailed by the very executives who ran the company in the ground in the first place and will bolt for the doors if they don't get fat wads of cash ought to make AIG's CEO say "Don't let the door hitcha where the good Lord splitcha", instead of reciting the now-debunked canard that this kind of compensation is "necessary" in order to retain "the best and the brightest."
Most Americans want to give the Obama Administration every chance to succeed, because we know, even if Rush Limbaugh doesn't, that a failed presidency right now is the last thing we need, especially looking at a Republican bench that consists of Newt Gingrich, Mitt Romney, Sarah the Hypocrite Palin, and Lunatic Bobby Jindal. But there's only so far the people's patience will go:
The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda.
The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger.
“We’ve got enormous problems that need to be addressed,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “And it’s hard to address because there’s a lot of anger about the irresponsibility that led us to this point.”
“This has been welling up for a long time,” he said.
Mr. Obama’s aides said any surge of such a sentiment could complicate efforts to win Congressional approval for the additional bailout packages that Mr. Obama has signaled will be necessary to stabilize the banking system.
As it is, there have already been moves in Congress to limit compensation to executives at banks and Wall Street firms that are receiving government help to survive.
Beyond that, a shifting political mood challenges Mr. Obama’s political skills, as he seeks to acknowledge the anger without becoming a target of it. A central question for Mr. Obama is whether his cool style — “in a time of crisis, we cannot afford to govern out of anger,” he said in his address to Congress last month — will prove effective when the country may be feeling more emotional.
Even as Mr. Summers was denouncing A.I.G. for the bonuses, he suggested that there was little if anything the government could do to stop them, seconding the conclusion of Treasury Secretary Timothy F. Geithner. But even if their reasoning was legally sound, they also risked having the administration look ineffectual in the face of what Mr. Summers said was the worst financial abuse of the last 18 months, since the economy began turning down in earnest.
“Never underestimate the capacity of angry populism in times of economic stress,” said Robert Reich, a professor of public policy at the University of California, Berkeley, and labor secretary under President Bill Clinton. “A big challenge for President Obama will be to maintain a rational and tactical public discussion in the midst of this severe downturn. The desire for culprits at times like this is strong.”
I don't buy the handwringing about how there's nothing the Administration can do, when there is: they can turn off the spigots to AIG and let the chips fall where they may. That may be catastrophic, but I don't see how continuing to finance these greedy bastards who are only looking to enrich themselves before the whole thing collapses anyway is going to solve anything. The Administration also loses credibility when it advocates renegotiation of the contracts of automobile workers who actually DO their jobs, and then wrings its hands in helpless despair when it comes to AIG executives who don't -- unless their job consists of stuffing their pockets with taxpayer cash.
Robert Kuttner says that Obama's in-thrall-to-Wall-Street money guys are driving the country off a cliff:
The financial danger is that the Treasury will burn through the money approved by Congress without fixing the system. The political danger is that Republicans will posture as the populists, expressing faux-indignation that so much taxpayer money has gone to Wall Street. The overarching risk to Obama's presidency is that the plan won't work, and his political capital will evaporate along with the financial capital.
There is a whole other path to repairing the banking system, and a whole other set of experts, equally brilliant and better in touch with financial realities. But their unfiltered views are not reaching the president. This loyal opposition, of which more shortly, is not limited to lefties; it spans the ideological spectrum.
Though the details are numbingly technical (and deliberately mystified both by the investment bankers and their allies at the Treasury), the basics of what's wrong with the banking system and how to fix it are, at bottom, very simple.
After all, what do banks do? They take in deposits and they put out loans and make other investments.
In the past decade, far too many of the banks' investments were far too speculative. They lost vast sums, which now exceed the value of their capital. In plain English, they are insolvent.
In a situation like this, a busted banking system can push the whole economy into prolonged depression. We are right on the edge of that condition, and there is little time to lose.
As the president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, explained March 6 in a brilliant speech (PDF) that is being widely circulated on Capitol Hill, "Too Big Has Failed," to save the banking system we need a public corporation like the Reconstruction Finance Corporation of the 1930s, which at one point held about one-third of all U.S. bank stock, and by the time it wrapped up its affairs it did not cost taxpayers a penny.
A modern RFC would be given the technical competence and manpower to audit just how bad things are. It needs to determine how far underwater is each of the large banks. (The top four hold about 55 percent of all deposits; fix them and you fix the system.)
The public corporation, according to Hoenig, would need to decide which banks to take into receivership, which ones have competent management teams, and which managers need to go.
Once the size of the hole in bank capital is determined -- and it will be on the scale of two trillion dollars -- the government needs to decide who eats the loss. How much do the taxpayers put in, and how much do the bondholders have to sacrifice?
Owners of bank stocks are not really relevant. They have already lost upwards of 95 percent of their investments. When a bank is taken into receivership, they will lose the rest. But it's no big deal for the system. Trying to use public money to pump up the value of bank stocks -- Geithner's approach -- has it backwards.
The scary part of all this is that when both parties are completely and utterly in the thrall of Wall Street, and Wall Street is characterized by unfettered individual greed that has no limits, what happens to the rest of us?
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