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ROBERT KUTTNER: You know, the basic problem here is that Wall Street, despite having been totally disgraced by events, still has an enormous amount of power in the Obama administration, as much as in the Bush administration before it. If you look at the fine details of the latest Geithner scheme for trying to rescue the banks, it gives a tremendous amount of power to the least regulated, least transparent financial institutions in the whole system: private equity and hedge funds. It tries to bribe them to make another round of speculative bets on underwater assets. This is exactly backwards.
And I’m going to make a couple of predictions here. I think Geithner is probably gone within sixty days, because he has become a liability to the administration. And I think the real question is whether Obama and his political advisers are going to have the wit to realize that they hired the wrong team. There’s a whole other cast of people who are every bit as technically competent and brilliant as Larry Summers or Tim Geithner who believe that you need a Reconstruction Finance Corporation that would take control of these entities and put auditors who work for the US government inside them and sort out what’s really going on on their balance sheets, break them into manageable pieces, figure out how much of the loss the taxpayer takes, how much of the loss the bondholder takes, and get the financial system up and running again.
And what’s really interesting is that the people who have espoused this view run the gamut from Paul Krugman and Joe Stiglitz and Nouriel Roubini—that’s predictable, although Roubini is not particularly a progressive, he’s just very knowledgeable—but then you’ve got Republican conservatives, you’ve got the American Enterprise Institute. Alex Pollock, their expert on this, testified the other day that the TARP is completely flawed as a strategy for fixing this; you need a Reconstruction Finance Corporation. The conservative president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, gave a terrific speech on why an RFC is the only way to go. A guy named Rodgin Cohen, who was a lawyer for the very Wall Street investment banks that are negotiating with Geithner, whose name was briefly floated as Deputy Treasury Secretary, he’s in favor of an RFC.
So I think you’re going to see this view crystallizing, that TARP is a completely flawed approach. And don’t forget that the money that is being used to bail out AIG is TARP money. The whole approach of letting the same culprits who created this mess keep their jobs and throw money at them and use speculators to bet on the distressed securities is just catastrophic. And the only good thing about the AIG mess is it’s shedding a spotlight on the fact that this is a political failure, and maybe now some people will start understanding that it’s a substantive failure, as well.
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http://www.democracynow.org/2009/3/18/lawmakers_vow_to_recoup_millions_in
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