After reading Matt Taibbi's article on the scope of the recession and the very real government acquiescence that allowed it to happen, I watched Obama's interview with Jay Leno and was surprised to find he spent half the interview talking about AIG. I think it's good that I did those things in this order because it gave me a little insight into how Obama plans to respond to the situation.
If you follow along with the Leno interview you'll see that Obama has an accurate understanding of the AIG situation, even naming the same player as Taibbi:
OBAMA: Then they decided -- some smart person [Joseph Cassano] decided, let's put a hedge fund on top of the insurance company and let's sell these derivative products to banks all around the world -- which are basically guarantees or insurance policies on all these sub-prime mortgages.
I guess it may not be too exciting for older folks to learn that the President has an accurate understanding of the situation. But the last time a Democrat was president, I was 12 years old. It's exciting to me that Obama has been briefed by people who actually know what was going on, and that he's pieced together the correct conclusion about who caused the problem.
The problem, which Taibbi doesn't emphasize because he's aiming for the rage gland in his readership, is that we can't simply shut down the elites. If the system is allowed to fail as it naturally should, the crap hits the fan.
OBAMA: The problem with AIG was that it owed so much and was tangled up with so many banks and institutions that if you had allowed it to just liquidate, to go into bankruptcy, it could have brought the whole financial system down. So it was the right thing to do to intervene in AIG.
The problem is that AIG was working for the wrong incentive in the first place. Joseph Cassano didn't want to keep the American economy secure; he wanted to ensure the appearance of security and make a lot of money in the process. So, how do you respond to that? Well, the NYT headline today is that Obama is going to regulate AIG's pay alongside various other new rules:
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.
So this is the way that Obama is going to fix the broken system: re-regulation. But according to what Taibbi's written, this is not sufficient. Here's why:
- The Fed has already made the move to plutocracy. They've ended all transparency in federal transactions and are sneaking unimaginable trillions of dollars under the table in the form of the ABCPMMMFLF and so forth. What's more, they're proposing all sorts of ridiculous new stuff.
- That money is gone. It's in the hands of bad bankers and it's not coming back.
- No matter how much regulation there is, investment bankers are still playing the same game: looking for the most obscure and deregulated way possible to squeeze money out of our loans.
Capping executive pay is not going to solve these problems. It's attacking the symptom instead of the disease. The reason Obama is doing this despite the fact that he knows everything Taibbi knows is that he has no
bipartisan alternative to simply patching up the oligarchy.
But it seems to me that if we want a sane banking system, nationalization is the only real option here. Nationalization would keep the banks running but end the profit motive and secretive gambling. Obama wields the power to tell Wall Street whether nationalization remains on the table, regardless of how much they may whine about it. The question is, is he ballsy enough to ask for it?