Faith & Social Justice: In the spirit of Richard Overton and the 17th C. Levellers

Geithner’s Plan for New Financial “Oversight”

UPDATE: It’s hard to tell whether the criticism of Geithner is fiercer on the Right or Left.  I’ll concentrate on the Left because it shows clearly that Democrats are not robots who blindly follow presidential leadership:  David Sirota of the Center for American Progress (CAP) is saying  that whether Geithner is lying or just incompetent, he needs to be fired.  Chris Bower of Open Left outlines how the AIG mess was CAUSED by the incompetence of Geithner’s bank plan.

If Geithner gets fired (I hope), I hope Obama will appoint a more progressive economist as Treasury Secretary: Robert Reich, Joseph Stiglitz, Dean Baker. It would be too much to hope for Paul Krugman.  Could we get rid of Chief Economic Advisor Larry Summers (who was responsible for much of the deregulation) while we are at it? 

I am no fan of Sec. of the Treasury Timothy Geithner.  I was against his appointment from the beginning, not because of his  tax problems (minor and common among Americans working for international organizations, as he did), but because as New York’s reserve board chair, he should have worked to PREVENT much of the financial slide.  (I was glad that Larry Summers, who helped deregulate during the Clinton years, didn’t get Treasury Sec., but then  he was made head of the WH Council of Economic Advisors–ugh!) Geithner was someone I considered part of the problem.

Now, I haven’t been 100% right on my calls on Obama appointments. So far, Hillary Clinton is proving to be a much better Secretary of State than I expected. It’s early, yet, but she seems to be advancing tough, pragmatic, diplomacy that is mostly aimed at a more just and peaceful world. She’s even dared to offer (mild) criticism to Israel, which is almost unheard of by U.S. diplomats and politicians.  My only complaint was her soft-pedaling China’s horrid human rights record.  And, to my DEEP surprise, Bush Appointee Gates is proving to be a team player as Secretary of Defense instead of trying to undermine Obama’s plans on Iraq, Gitmo,  and much else. (I have complaints about the Obama team on these issues, but they aren’t due to Gates–to my surprise.)  Ken Salazar looks like he is doing a fair clean up job as Sec. of Interior (although I still think  Rep. Raul Grijalva (D-AZ) would have been better) and, so far, Tom Vilsack has not sold us all out to Big Agribusiness as Sec. of Agriculture.   All this could change, but each of these appointments have surprised  me for the better.

But I seem to have been right on the money about Geithner (pardon the pun). He has protected the zombie banks instead of nationalizing them, cleaning out their toxic assets and re-privatizing them–after sending to the Justice Department the evidence from their books of fraud and other financial crimes.  His timidity has prevented the bold action necessary for full  economic recovery–and he and Summers are keeping Pres. Obama in a bubble where he doesn’t hear from the bolder economists like Joseph Stiglitz, Paul Krugman, Dean Baker, Robert Reich,  etc.

So, I was suspicious of Obama’s claim that Geithner would unveil “bold plans” for new financial sector oversight. I remembered the last Geithner “unveiling” and shuddered.  But,  if the Wall Street Journal is right (and their reporters are usually good, despite the hugely rightwing bias of their editorial pages), then I have to say I am pleasantly surprised.  This may not be enough, but Geithner’s plans seem like steps in the right direction.  According to the WSJ, Geithner’s plan would:

  • Insist on consistent enforcement of consumer protection laws regarding mortgages and credit cards. (This is not detailed enough. Congress should enact STRONGER protections such as interest rate  caps.)
  • Expanding the power of the Federal Reserve to spot and intervene in systemic risk (e.g., huge bets by banks on mortgages). These powers need to be spelled out clearly. Another aspect is the monitoring of the system which allows banks to borrow from each other–a system which, when clogged, blocks liquidity.  Geithner’s plan is vague about the type of oversight on hedge funds.  He is trying to coordinate financial regulation with international partners, but Europe rightly wants FAR MORE oversight on hedge funds.
  • Creation of a clearinghouse to monitor and regulate derivatives–the crap that led to our current meltdown.
  • Require banks  to keep more capital on hand during good times so that, when markets go bad, they have the cash to weather the storms.
  • Ask Congress to give  govt. the power to take over any institution about to fail whose failure would  threaten the stability of the market. Hmm. O.K., but why not use anti-trust laws to keep institutions from BECOMING “too big to fail,” breaking them up.  I’d want laws to make it more difficult for big banks to eat smaller ones. I’d like this “stepping in” authority to reside with the Federal Deposit Insurance Corporation (FDIC) rather than the Federal Reserve.

The article didn’t mention any new rules on bonuses or executive compensation.  I think Congress  should look at the WAY financial execs are paid: cancelling the way that traders get paid for deals completed whether they do well or poorly. The whole bonus culture needs to be attacked, especially since it is not performance based. If we are about to demand “merit pay” for public school teachers,  surely we should for bankers.

The article also didn’t talk about restoring the barrier between investment banks and ordinary deposit banks–the barrier removed by the repeal of Glass Steagall (that Clinton should have vetoed). Such a barrier limits damage if their is a financial sector crisis.

Again, this is not enough. But it is better than I expected to come from Geithner.  Now economic populists in Congress need to build on this to get deeper reforms.  We need to end “bubble economies.”


March 17, 2009 - Posted by | economic justice

1 Comment

  1. Thanks for posting these useful information. Keep them coming

    Comment by Simonn | March 21, 2009

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