The Case Against Geithner

It's a staple scene of countless alien invasion and zombie movies. The lead character encounters an old friend, who looks normal but something subtle is off. There's a glassy look in the friend's eye or his voice is strangely monotone. Pretty soon, it becomes clear that this no longer the old friend. He's become one of them.

That sums up my growing horror with Treasury Secretary Timothy Geithner over the last several weeks. It's becoming increasingly clear Geithner is not the tough-minded reformer Obama had hoped would clean up the banking mess, but a creature of the financial system itself -- too intertwined with its interests to usher in a new era.

Geithner's role in the AIG bonus firestorm is nothing short of shocking. Despite reports that he protested AIG's bonuses, I just can't fathom how Geithner didn't shut them down. He claims the administration's hands were tied by AIG's pre-existing contracts with employees. Employees might sue AIG for breach of contract. This just doesn't hold water. As has been widely noted, unions at the auto companies were forced to renogotiate their contracts when they were in-line for a bailout. Geithner should have said the bonuses would not fly and forced AIG down the same road. It's supremely troubling that AIG is calling the shots on bonuses -- and the Treasury is unwilling to forcefully challenge them -- when taxpapyers own 80 percent of the company. That should give us a little leverage, no?

Furthermore, why wasn't this issue discussed when the government gave AIG $30 billion more in bailout money a couple of weeks back? And further furthermore, I say let any AIG employee sue who think he or she deserves a ridiculously large bonus for running the company and our economy into the ground. Somehow I think there'd be few takers. A decision would be rendered in the court of public opinion long before any judge makes a ruling. The employee would suffer a lifetime of humiliation.

What's even more troubling is that Geithner had a hand in creating a loophole that allowed the bonuses to go through. The American Recovery and Reinvestment Act signed by Obama in February places limits on executive compensation for companies receiving TARP funds from Feb. 11 forward (as AIG did). As it was initially written by Sen. Chris Dodd, the act would have had a clause retroactively limiting bonuses for contracts signed before Feb. 11. AIG's bonus contracts were penned back in April. Guess who lobbied to have this provision knocked down? Geithner. Firedoglake has the best rundown of this affair. Here's an excerpt from a Wall Street Journal story at the time:

"The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said."

So Geithner went to bat for the banks on Dodd's bill. Not only did he not stop the bonuses, he actively abetted their dispersal. This is hardly Geithner's only offense, or even biggest for that matter. There is another scandal waiting in the wings that positively dwarfs the AIG bonus debacle.

Scarily, I will quote the Wall Street Journal's editorial page:

Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue." This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then?

Where was Geithner on this one? Why didn't he raise a stink that an investment bank that claimed it needed no bailout got $13 billion or our bailout money was funding foreing banks? Did he know and, if he did, when? Add to all this Geithner's half-baked plan to bailout the banks, which was unveiled to universal derision in February. Here's Paul Krugman on who benefits from the plan:

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

Take the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.

But would it be enough to make the banking system healthy? No.

Think of it this way: by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued.

It seems at every turn Geithner is looking out for Wall Street, not taxpayers. Back to the alien invasion analogy, maybe Geithner really is one of them? The scariest part is Geithner could very well pull the Obama Administration down around him.

Man of Steele (not)

It's time for Michael Steele to go. It's that simple if the GOP wants to remain a viable alternative to the Democrats. Steele has exhibited the rare political gift of looking as foolish apologizing for his gaffes as he has making them. Instead of providing leadership, he's been a distraction -- a welcome diversion during our economic apocalypse -- but ultimately not a leader. The real clincher for me comes in his latest interview in GQ.

A quick summary of some of the choice passages:

GQ: I was kinda expecting hip-hop to be playing in here today.

Steele: Aw, sh—. It’s on my, uh, computer there. I haven’t pulled it up yet, but I’ll get a little bit goin’ in a second or two.

...

GQ: How do you deal with the criticism?

Steele: I just pray on it.

GQ: You do?

Steele: Oh yeah. And I ask God, “Hey, let me show just a little bit of love, so I absolutely don’t go out and kick this person’s ass.”

...

GQ: Despite all the hits you’ve taken, you sound pretty excited to be
here.

Steele: I’ll tell you, it’s a real honor. It’s good. It’s good. It’s fun. It’s exciting. It’s an opportunity that, growing up here in D.C., I never thought I’d get. And now here I am. I mean, who’da thunk it in 1963 that
in 2009 two black men would sit on top of the political world of this country? How friggin’ awesome is that? You cannot look at that and not go, “Wow.”

Yeah, Michael Steele sounds way more fun to hang out with than Rush Limbaugh, but is this really the tone the GOP wants to set right now? Clearly, Steele seems to think his language will resonate with young people, but it's more likely to remind them of Bush. After 8 years of incompetence and the malapropisms that came to symbolize Bush's follies, "friggin' awesome" should not grace the lips of any savvy Republican leader. This is doubly true when an economic crisis is threatening to push the nation into another depression. The Republicans need to re-establish themselves as a sober and serious party. Steele's not "off the hook." He's just off.

UPDATE: The revolt begins in the GOP.

The hole in Obama's grand ambitions

Since Obama unveiled his ambitious budget last week, Republicans have embraced the farcical meme that the president is a socialist. The charges are yet more evidence the GOP is taking an appallingly unserious approach to the current economic crisis. In fact, what worries me most about the president is not his expansion of government, but the surprisingly timid government intervention in one key area: the banking collapse.

Back in mid-February, Treasury Secretary Geithner unveiled the administration's much anticipated plan for rescuing banks. The markets promptly dropped nearly 400 points and the plan was panned far-and-wide as too vague. Fast-forward three weeks and even greater wreckage on Wall Street and it seems the Obama Administration is not much closer to a solution, as Paul Krugman points out in his column today:

The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.

Krugman goes on to say the feds latest plan -- offering low-interest loans to private investors willing to snap up the bank's stinking assets -- is politically DOA. Congress would never release trillions to insure the investments of hedge fund managers and the like, who helped push us toward the economic abyss. It's hard to argue there. Meanwhile, Citigroup's stock closed at a paltry $1.02 yesterday. Temporary nationalization is beginning to look like a better strategy as The New Republic points out in its latest cover story:

Perhaps the boldest of the available options is temporary government ownership, loosely known as nationalization. Economists from Paul Krugman and Joe Stiglitz to Alan Greenspan have converged on this course, and the markets--or at least bank shareholders--are beginning to anticipate it. But Geithner has been even less keen on nationalization than the alternatives, telling Jim Lehrer it's "the wrong strategy for the country." Has the Treasury secretary suddenly lost his nerve?

That last question is the key. Of course, nationalization opens a whole new set of thorny policy issues surrounding the feds control of major banks, not to mention the political fallout (maybe the GOP can replace its "socialist" howls with "communist" ones). But it's become clear bold action is needed, as Obama himself called for a little while back. What's interesting is Obama's timidity on the bank bailout stands in striking contrast to his sweeping program to reform healthcare, energy, and education. And here, I think, lies the rub: fixing the banking crisis is key to the health of the economy because lending is the lifeblood of capitalism. The health of the economy is key to implementing his agenda. By not proposing a forward-looking solution to the banking crisis, Obama is risking all of his grand plans.

The worm turns on lobbying scandals

The Post had a brief, but illuminating story, about how Democrats are stopping GOP efforts to remove earmarks from the 2009 omnibus spending bill Congress is currently debating. This gem is in the lead:

"The Senate approved $10 million in funding yesterday for clients of a now-disbanded lobbying firm that is under federal investigation for alleged fraud in political contributions to members of Congress..."

The firm, PMA, may have funded campaign donations, mainly to Democrats, through bogus donors. Over the years, various congressman including Pennsylvania Rep. John Murtha have secured hundreds of millions in earmarks for PMA clients. It wasn't too long ago that Democrats were using the cudgel of Jack Abramoff to beat the GOP silly in congressional races across the country. You might think the party of reform would stear clear from such rank hypocrisy...no? But apparently not. The money quote in the piece goes to Sen. Daniel K. Inouye:

"Yes, we know that the firm was raided by the FBI and we also know that the firm is in the process of being disbanded. But we also know no one from the firm has been convicted of any crime."

Now, that's reassuring.

Limbaugh, the Don

After witnessing Michael Steele kiss Rush's ring in apology after their spat, we shouldn't be talking about Limbaugh as the de facto leader of the GOP. The only word to describe him is The Don. Cross him and you'll find a horse head in your bed, ask Phil Gingrey.

The GOP's Epic Fail

It was hard to imagine the GOP hitting a lower point politically than the dead-ender days of W.'s presidency, but this moment may very well be it. The only thing dropping faster right now is the Dow. Jindal's disastrous performance in the response to the non-SOTU, infighting between Michael Steele and Rush Limbaugh, and crude racial comments (here and here) that are sure to alienate the minorities the GOP needs to expand the party beyond a white, southern one. Sure, a lot of these dust-ups will be forgotten in a few days, but the overall impression is a party adrift at a time it can least afford it.



What a difference a few weeks makes. Remember, after the stimulus debate, congressional Republicans were hi-fiving themselves over their near unanimous opposition to the bill. They felt like they had scored political points (even if they couldn't stop the package) by casting doubt on some of the spending in the bill. Beltway pundits picked up the GOP's line and it appeared the Republicans were gaining momentum. To my mind, the turning came when the Washington Post and New York Times unveiled polls showing solid majorities approved of the stimulus package and Obama's approval ratings remained high. The GOP rebound was revealed as another unsustainable bubble.



The problems with the GOP seem to sprout from two separate, but intertwined issues: a lack of leadership and an ideological rigidity. The tussle over party leadership between Rush and Steele obviously plays into Dems hands. Jindal isn't ready for the national stage -- at least not yet. It's not clear where leadership will come from, but a sensible moderate seems like the best bet. The GOP also appears incapable of grasping the political moment has turned. The tired ideology of tax cuts uber allis and smaller government (see the post on Jindal below) is not where we are at -- find a way the government can play a constructive role and a way to reach out to the suffering middle class.



One last thing, if you're going to try to re-cast yourself as the party of fiscal discipline don't gobble up 40 percent of the earmarks in the 2009 omnibus appropriations bill. It's not a good place to start.


UPDATE: The Politico assesses the failings of the current GOP and employs the same Dow metaphor I used:

"Four months after John McCain’s sweeping defeat, senior Republicans are coming to grips with the fact that the party is still – in stock market terms – looking for the bottom."

Sorry to extend the metaphor even further, but it seems the GOP's downward spiral could turn out to be self-reinforcing -- like the stock market. The GOP's huge loses in November's elections sheered off many of the party's moderates. The remaining party is more conservative and hence more likely to find direction/solace in hard right ideologues like Limbaugh and Palin. Of course, this could drive away moderates leaving an even smaller party. And so on.

A New Era

When President Ronald Reagan swept into office in 1980, it signaled a new conservative era in American politics. That era officially ended on Thursday when Obama unveiled his first budget. The moment is as historically momentous, albeit in a different way, as Obama's election as the nation's first African-American president.

Obama's budget amounts to an ambitious plan to reimagine government and, to a large degree, American society. Where Reagan advocated for smaller government, less taxes and unfettered capitalism, Obama is betting the financial meltdown, the housing crisis, and 8 years of Bush have left Americans hungry for a newly energized, enlarged, and active government. Obama would tackle healthcare reform, green energy, and education. But his budget would also begin to close the income inequality that was one of the hallmarks of the conservative era. He will raise taxes on the richest Americans and give breaks to middle and low-income earners -- a total repudiation of Bush's tax policy.

I, like many people, had been saying for awhile that Obama's presidency would ride on the success or failure of the massive stimulus package. That remains true, but he's now doubled-down on that bet. Obama has lined up a formidable array of opponents with his budget proposals -- the gas and oil industry, big agriculture, and banking interests. Whether he can outstrip these interests and whether the American people will follow will determine the contours of this nascent era -- and Obama's place in history.