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Populism MIA in Bailout Plan

David Cho and Lori Montgomery write in The Washington Post: "Treasury Secretary Timothy F. Geithner this morning announced a rescue program for the hard-hit U.S. financial system that may commit up to $1.5 trillion in public and private funds....

"Geithner announced a public-private partnership that would seek to finance the purchasing of toxic bank assets that are at the heart of the credit crisis. The program would initially raise $500 billion in public and private funds to offer low-cost financing to encourage investors to buy the toxic assets, and could eventually include as much as $1 trillion in funds...

"A second initiative will broaden the scope of a Federal Reserve program aimed at unclogging the markets for auto, student and other consumer loans. That initiative may expand to as much as $1 trillion, using $100 billion from the Treasury's rescue funds, and include aid for commercial real estate markets.

"A third program would offer direct help to the nation's largest banks. The government plans to conduct a review of major financial firms to determine how much they may need. Any federal aid would come with conditions that would give the firms incentives to pay the money back as soon as possible. The review would determine the ultimate price tag of this program."

So where did all the populism go?

Stephen Labaton and Edmund L. Andrews write in the New York Times: "The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.

"In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

"Mr. Geithner...successfully fought against more severe limits on executive pay for companies receiving government aid.

"He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid...

"[O]fficials said Mr. Geithner worried that the plan would not work — and could become more expensive for taxpayers — if there were too much government involvement in the affairs of the companies."

By Dan Froomkin  |  February 10, 2009; 12:11 PM ET
Categories:  Financial Crisis  
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Comments

"[O]fficials said Mr. Geithner worried that the plan would not work — and could become more expensive for taxpayers — if there were too much government involvement in the affairs of the companies."

Hum, I wonder, what exactly is meant by too much involvement? Look, the banks want federal dollars to backstop their bad decisions. fine - but federal dollars are not like private dollars and thet need to come with strings. Anyone else getting federal grants has to submit to all sorts of rules, award conditions, reporting requirements and the like. Doesn't drag the grants process dwon one iota. MAke everyone do it form the beginning, and they will either play, or their false need for our dollars will become apparent.

Oh yeah, aren't we supposed to be seeing the implosion of the auto makers about now?

Posted by: kcsphil | February 10, 2009 12:40 PM | Report abuse

It's looking more and more like Obama, like Bush, desires a permenant sub class of citizens. Poor, educated, hopeless, and aging. All so that Wall St can still bathe in champagne and shower riches on the Democratic party. Keep those pitchforks shiney, folks, we just may have use for them yet.

Posted by: davidbn27 | February 10, 2009 1:59 PM | Report abuse

Yeah, that the ticket, LESS intervention by government into criminal enterprises! Why am I thinking that I have been demoted from citizen to mark?

Posted by: davidbn27 | February 10, 2009 2:01 PM | Report abuse

As an entrepreneur, I can agree with Geithner up to a point. Most of the top MBAs are like the Ferengi on Star Trek. "They and their culture are characterized by a mercantile obsession with profit and trade and their constant efforts to swindle people into bad deals."

Limiting their pay isn't appealing and will make it difficult to recruit. If they add value, pay them some commission up front, but pay a significant share over 2-3 years.

Thus, they also have to take the risk that if they don't perform, they get nothing. This is the model for IBM compensation for their sales and customer-facing people.

Gosh, that sounds like capitalism, doesn't it?

1) I want taxpayers to get EQUITY, not just loan money.
2) We should receive convertible warrants for our loan money- that is, we receive interest or we can convert our loans to equity.

Those of us who remember Resolution Trust Corp from the S&L shenanigans during the Bush 1 era know about toxic assets. That was merely $394 billion in bad real estate loans.

Posted by: boscobobb | February 10, 2009 4:52 PM | Report abuse

This plan lacks strong oversight, specific requirements of bank performance and insufficent equity for the government (and by extension, the taxpayer). I for one would recommend that this plan be over ruled by congress. This is a travesty.

Posted by: samson1 | February 10, 2009 6:58 PM | Report abuse

I was really disappointed with Timothy Geithner's plan, if that's what is supposed to be. Banks, particularily Investment Banks have become gambling venues as the stock market has become. Assisting these criminals is not wise. By the way, I lost my retirement funds during the 2001-02 recession because they were invested in stocks. It's gambling racket and no more.

Posted by: sailorflat | February 11, 2009 3:23 PM | Report abuse

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