Farewell to Bush policies favoring the rich;
welcome to Timothy Geithner’s world
By Roger Bybee
The Feb. 10 NY Times carried a story about an Ohio plant closed a year ago where only 15% of the workers now have steady work, with crushing effects on the lives of people who had worked hard their entire lives.
The fate of working people like these were supposed to be at the core of the Obama presidency. We were to expect a drastic shift from the harsh-corpoate-centered policies not just of George W. Bush but also Republican-lite Bill Cinton and his Treasury Secretary Robert Rubin. Political analyst Kevin Phillips coined the phrased "Rubinomics" to describe Democratic policies that were a thinly-veiled version of Republican trickle-down style economics, producing th much-hated North American Free Trade Agreement which promotes the shift of US jobs to low-wage Mexican plants, the bailout of US bankers when the peso predictably plummeted in value, and forsearing any effort to rein in corporate welfare.
Yet next to that article was a piece detailing how Treasury Secretary Timonth Geithner had prevailed in shaping the next stage of the financial-markets bailout. The normally class-oblivious Times’ account is worth quoting at length–its frank revelations on the class bias of Geithener’s plan read like they were written by the the late Marxist eonomist Paul Sweezy of Monthly Reivew:::
"Some of President Obama‘s advisers had advocated tighter restrictions on aid recipients, arguing that rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year’s bailouts could feed a potent political reaction if the administration did not demand enough sacrifices from the companies that receive federal money.
"They also worry that any reaction could make it difficult to win Congressional approval for more bank rescue money, which the administration could need in coming months.
""But officials 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.
"Mr. Geithner also expressed concern that too many government controls would discourage private investors from participating….
[The plan includes a couple positive elements]
- "It will also renew a legislative proposal giving bankruptcy judges greater authority to modify mortgages on more favorable terms to borrowers and over the objections of banks….
- "For his part, Mr. Geithner will blame corporate executives for much of the economic crisis, according to officials. He will announce rules that require all banks receiving capital from the government to submit plans that describe how they intend to strengthen their lending programs and generally restrict them from using the money to acquire other banks until the government money is repaid.
"But as intended largely by Mr. Geithner, the plan stops short of intruding too significantly into bankers’ affairs even as they come onto the public dole.
"The $500,000 pay cap for executives at companies receiving assistance, for instance, applies only to very senior executives. Some officials argued for caps that applied to every employee at institutions that received taxpayer money.
"Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. (Shareholders at most banks that fail will continue to lose their investment.)
"Nor will the government announce any plans to replace the management of virtually any of the troubled institutions, despite arguments by some to oust current management at the most troubled banks.
Finally, while the administration will urge banks to increase their lending, and possibly provide some incentives, it will not dictate to the banks how they should spend the billions of dollars in new government money.
And for all of its boldness, the plan largely repeats the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.
"In internal discussions, Mr. Geithner is said by officials to have raised the lessons of countries that forced banks to make loans and adopted other, more interventionist measures. Those strategies, he said, wound up costing more and undermining their governments’ credibility. He concluded the wiser course would be to provide economic incentives to encourage lending."
Providing incentives to bankers for doing what they should be doing: investing and making loans? Under the prevailing system, isn’t that what they are supposed to be doing anyway
Taking shareholders off the hook for the risks they undertook while using taxpayer dollars to cover their losses?
Watering down the caps on executive pay?
If they keep this up, both President OBama and his Treasury Secretary–who seems like he is an escapee from Enron’s management team–may discover the full ferocity of what the Times called "populist outrage" from folks like the discarded workers at that closed Ohio plant.