NYT’s DealBook is reporting that analysts at RBC Capital Markets are proposing what looks a lot like a quasi-nationalization proposal.
‘Nationalization’ is a loaded word. But the key is making insolvent banks face their insolvency, from which a number of steps inevitably follow …
The analysts, including Jon Arfstrom, Jason Arnold, Gerard Cassidy and Joe Morford, suggest that the solution to the bank meltdown is a tough love approach: The government should seize insolvent banks — “of any size,” they write — and pool the worst assets in an investment vehicle akin to the Resolution Trust Corporation, which was formed to mop up the flotsam from the savings and loan debacle.
Why such a harsh prescription?
These analysts think that American banks are still carrying far too many assets at inflated prices, and marking them down to more-realistic values would “overwhelm the capital of the U.S. banking system,” they say.
Watching the Dow is always a questionable metric for evaluating the merits of policy decisions the government announces. But it’s worth looking particularly closely at the reactions of financial stocks, particularly bank stocks — and how the swings in their value are perceived. A real solution to the present crisis probably involves wiping out the shareholders in the bank. So as investors see that on the horizon, if we ever get there, it will only be logical for people to try to unload those stocks.
From TPM Reader BR …
FDR like Obama came to office with two jobs in front of him – straightening out the banking system and stimulating the economy. He punted for a year and a half on fiscal stimulus. (Very likely he didn’t realize what he needed to do, but even if he did he would have been unable to do much.) He was politically dependent on conservative Democrats like Al Smith, John Raskov, Daniel Roper and Lewis Douglas and the interests they represented (e.g., the chemical industry). These people were committed to the balanced budget. After he dealt with the banks, he abandoned the balanced budget and lost political support from the conservative Democrats.
Obama is in a mirror-image political situation. He was elected with lots of support from big financial interests, and he needs to maintain that support to get his stimulus package through. He isn’t strong enough right now to win a two-front war against the Republicans and the big banks.
I read this context into this morning’s leak to the Times. The only people who know what was said between Axelrod and Obama are the two of them, and I don’t think Axelrod would leak without Obama’s OK. Obama feels he can’t say no to Geithner right now without losing his stimulus package. But he’s going to make the bank bailout stand or fall on its own. If it gets shot down, then – with the stimulus passed – he will be in a position to turn to a different strategy.
We’ve found our Geithner fan. Floyd Norris of the Times says: “Tim Geithner hit all the right notes in his speech on the new bailout plan today, and as I said last night on the Charlie Rose show, I think it has a chance to work. It is clear that he and his colleagues have given a lot of thought to what failed to work last year, and learned from the experience.”
Leisure class wingnut posse forming to out Sen. Arlen Specter (R-PA) in primary challenge next year.
In other news, Sarah Palin’s cronified Attorney General who was knee deep in her scandals suddenly announces resignation to spend more time … doing something, not clear what.
It seems that Tzipi Livni’s Kadima party may be pulling out a very narrow upset over Netanyahu’s Likud. On the other hand, even if Kadima gets the most votes, the exit polls are suggesting parties of the right with just over 60 seats in the Knesset. So it’s not clear Livni would be able to form a government even if they win a plurality of seats.
Late Update: Looking a little deeper into these results it’s a very weird outcome. It looks pretty clear that Netanyahu ‘lost’ in that Kadima will probably get two seats more than Likud. But it also looks clear that parties of the right are going to have like 63 or 64 seats. And in a parliamentary system, who wins a minor plurality doesn’t really mean anything. That said, if Netanyahu can form a government it seems like he’ll come in a substantially weakened state.
TPM Reader AN responds:
At what point do you think Obama fans will dispense with this weird fantasy that your reader BR indulges in about what Obama is really thinking and what his real plans are?
I personally am an Obama fan. And I think it makes sense to give him the benefit of the doubt during the period before actual policy is either announced or implemented. But there has to come a point where people stop pretending that Obama is some superintelligent ninjalike political operator who’s playing the game at a level the rest of us novices cannot even comprehend and instead start holding him accountable for the decisions that he or his subordinates make.
When Geithner was nominated a lot of people complained that he was a poor choice because he was far too beholden to the big Wall Street players and their interests. Now it appears that he’s trying to do everything in his power to protect those very people at the expense of the American tax payer. For better or worse this falls squarely on Obama’s shoulders–as it should.
I think people want Obama to be something that perhaps he’s not–namely, a strong progressive democrat. Maybe he really is a centrist (and I don’t mean a vague meaningless Ben Nelson type) and that’s fine. But if a person is hoping for a more progressive president it won’t really do any good to pretend that he’d be more progressive if only he could. Sooner or later people are going to have to demand more progressive policy.
Martin Wolf on Geithner’s plan …
Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.
I’m not sure I agree 100% because I still see this fundamentally as a punt. And as some point out there are kernels in here of what could be a good plan. But I think the fundamental point is right on. Bank bailouts are catastrophic in political terms and much more important, in the Paulson/Geithner model, probably won’t work either. That’s a bad combination. At some point, Obama owns this.