President Obama couldn’t make it up to New York City last week for the 9/11 anniversary, but he’s up there today to mark the collapse of Lehman Brothers with a speech on financial reform and a new push for more regulatory agencies and government authority to be handed to botched bailout architects and enablers like Tim Geithner.
Shorter Obama: Now that I’ve propped up Big Banks with billions upon billions of taxpayer dollars & made ‘em bigger than ever, we should really do something about this!
And trademark finger-wagging: Stop engaging in all that “reckless behavior” that we rewarded with massive, publicly-funded rescue plans that simply provide greater incentives for you to engage in more reckless behavior.
Here’s Joseph Stiglitz’s diagnosis, which can be summed up in one word: FAIL.
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”
A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.
While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.
And yes, even the NYTimes is getting exasperated:
…while Mr. Obama has offered two basic ideas to address it, his economic team has yet to offer anything close to a concrete plan.
The nation’s four biggest banks now control 60 percent of all bank deposits in the country, higher than two years ago. The handful of banking winners, like JPMorgan Chase and Wells Fargo, have acquired giant failing competitors. The ranks of bulge-bracket Wall Street investment banks have been cut back by the loss of Lehman Brothers and Bear Stearns. The remaining survivors, like Goldman Sachs and Morgan Stanley, have been recruiting top producers from their crippled rivals.
Mr. Obama’s regulatory overhaul plan would tackle the problem in two ways.
The first is to have Congress give the government stronger powers to shut down big insolvent institutions in an orderly way — what policy wonks call “resolution authority.” The Federal Deposit Insurance Corporation already has the power to seize troubled banks, and it has taken over more than 145 banks in the last year. Normally, the F.D.I.C. arranges to sell the bad bank’s assets to a healthier institution and absorbs the losses that are left, after paying off customers’ insured deposits.
Mr. Obama’s plan would expand the government’s power to cover bank holding companies as well as non-bank financial institutions — investment banks, insurance companies, industrial loan companies and possibly even private equity firms.
But Mr. Obama would do well to put some meat on the bones of that plan. When would the government decide to intervene, as opposed to letting the normal bankruptcy process unfold? Since “resolutions” always cost money, how would the program be financed? (Banks currently pay insurance premiums to the F.D.I.C.’s insurance fund. Would Met Life pay insurance premiums toa federal agency in advance?)
Obama’s paragons of financial oversight, Grabby Hands Barney Frank and corruptocrat Chris Dodd, can’t wait to get started.
Obama said, “I want everybody to hear my words.” Even the NYTimes notes that his words did not include any actual policy proposals.
From the Pen notes Robert Gibbs’ odd choice of words in “celebrating” the financial meltdown.
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