Tomorrow Treasury Secretary Tim Geithner will roll out Obama's bailout plan. If reports are accurate, the plan is a huge gift to Wall Street and the wealthy courtesy of taxpayers. It's not just wrong; it's a political blunder. It will ignite populist anger on both the left and right, which will hamper Obama's ability to lead.
The Times described the plan yesterday. Here's the most disturbing part.
The new financial industry rescue plan, to be outlined in broad terms on Monday in a speech by the Treasury secretary, Timothy F. Geithner, will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks.
The incentives to investors could be in the form of commitments to absorb some of the losses from any assets they purchase, should their values continue to decline. The goal is to relieve the banks of their worst assets so that private investors might then provide more capital.
So, if I understand correctly, we'll give more money to banks but they won't be required to lend (and so they won't.) At the same time, our money will protect from risk rich people who buy these sickly assets.
What am I missing?
This strikes me as a huge substantive and political blunder. To push this plan right now is to seriously misread the moment. Perhaps it's not too late to change it?
UPDATE: Geithner, in a briefing with Congressional Dems, said banks would, in fact, be required to increase lending.
Several people have asked what approach I favor. (For some reason, they care.) Well, Team Obama rejected nationalization out of pure ideology, but that's the approach that I think makes the most sense. That's the approach favored by economists who were right about most things in the lead up to the crisis, like Joseph Stiglitz. As most of you know, he was one of the fathers--arguably the father--of the Third Way economics who left the Neoliberal faith in the late nineties (and won the Nobel Prize.) He says nationalization of banks is the only answer.
UPDATE 2: Roll out postponed till Tuesday.