Hard to sort through all the conflicting opinions about the Team Obama economic strategy, but one convincing argument that pops up more and more frequently is that the banking system is insolvent and requires much more radical measures than the lame-ass Paulson Redux unveiled today. That would explain why rescue package after rescue package all get the gong from Wall Street, like Tuesday’s 4-plus percent tanking.
A local institution here is trying to keep people’s morale up by making promises it can’t really keep, then dropping the bombshell when payroll isn’t met or another staffer or two is forced to exit. That approach postpones the unpleasantness for the top brass as they avoid eliminating programs, furloughing everybody for a few weeks or calling out the entire office to go sit in at the appropriate government offices until there’s a solution that sticks.
The slow-collapse mode really is not helpful, but that’s the first response on both micro and macro levels. If the big banks are hopelessly underwater, somebody’s gotta decide to put them out of their misery, nationalize them like the Swedes did in the 1990s, wipe out share- and bondholders, separate the toxic assets from the salvageable ones, run the whole sucker for an indeterminate period and then resell it all back to private owners when things calm down. In fact, it’s done all the time by the FDIC when they take a flailing, failing savings & loan and pull the plug on it. It costs money, but the overall system barely notices.
Maybe radical steps don’t come naturally to people like Geithner who’ve spent their entire lives in magical bubbleland with the Great and Mighty, making fat salaries and forgetting to pay taxes on them. Obama has a modest, moderate streak that is attractive and made him president. But I have a feeling he’s going to need to reach into his bag and pull out another persona sooner rather than later if he plans to stay ahead of the rapidly plummeting curve on the econ charts.
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