Obama And The Banks

Treasury Secretary Geithner and the Obama administration are claiming that taxpayers will be adequately protected in the new bank bailout scheme they are peddling on Capitol Hill today. However, John Carney at Clusterstock says that “the Obama administration either doesn’t understand (the plan) or is lying about it.” Cynics would claim that President Obama and his Treasury Secretary not only understand the plan but are lying about it also.

Criticism of the Public/Private (PPIF) partnership proposal is truly bipartisan. Two very liberal Nobel Laureates, Paul Krugman and Joseph Stiglitz, at the risk of excommunication from the Cult of Obama, have come out vehemently opposed to the Obama plan. Stiglitz remarked:

“The Geithner plan is very badly flawed,” Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner’s plan to wipe up to US$1 trillion in bad debt off banks’ balance sheets, unveiled on Monday, offered “perverse incentives”, Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

This all begs the question as to how and why the Obama administration is pushing a plan so favorable to banks and hedge fund/private equity investors. What happened to the “no more politics as usual” hope and change Candidate Obama that brought about this special interest beholding President Obama? An article in the Wall Street Journal today offers some insight into that question. Ace reporter Monica Langly says that President Obama has had to dial down some of his heated rhetoric about the financial industry of late because apparently the administration figured out it could not demagogue the crisis away (a strategy that works well in campaigns but fails miserably in governing).

It remains to be seen whether the newest iteration of the Obama/Geithner bailout plan works, but it is a settled matter now that Barrack Obama has sold out to the banks and institutional investors on the matter of principle. That he has cashed in his political chips with what has heretofore been perceived (incorrectly, I might add) as a constituency of the Republican Party will work in his favor only temporarily. The ultimate political undoing of Barrack Obama will come from the opportunists on both sides of the aisle that already recognize (as the banks did weeks ago) that he is an easy mark, both unprincipled and shallow.

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