financial services bailout
In an interview for the March/April 2010 issue of the Dartmouth Alumni Magazine, Jake Tapper of ABC News asks Hank Paulson about his role as Treasury Secretary during the financial meltdown. Here is one question that caught my attention (page 37):
Should there not be any organizations that are too big to fail?
Well they are as big as they are, so the key question is how do you regulate them and how do you have the proper authorities and tools in place so you can let them fail without taking down the rest of the system? This is something that Ben and I had talked with Congress about before Lehman went down. We saw we needed these powers. There’s no way we could get them, and the president and current Treasury secretary still haven’t gotten them. But I believe that with the right tools no institution needs to be too big to fail. You just need the power to unwind them outside of bankruptcy.
Maybe the best four-minute explanation of how screwed up our policies toward financially distressed firms have been. What does it say about us that The Daily Show is the best TV news program? That we are lucky to have The Daily Show.
Watch it here.
Bruce and Pete have already noted that Treasury Secretary Geithner is going to request an extension of the time during which he can treat the TARP as his walking-around money. Washington appears to hate nothing so much as a surplus. The right thing to do is to defund TARP, given that its stated purpose has expired, and then do appropriations through conventional processes. Anything that makes it easier for Congress to appropriate funds without having to confront their cost in a straightforward way is well on its way to being a bad idea. For a very good discussion, see these two posts by Donald Marron.
The Office of the Inspector General of the TARP released a tough report yesterday illuminating and criticizing the way the flawed design of the AIG bailout led to large transfers from taxpayers to AIG's counterparties. You can read a good article by Mary Williams Walsh at The New York Times and another report from The Washington Post.
I would take issue with one statement in the report and the associated discussion. From the NYT article:
The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.
Last week, the Wall Street Journal reported that "[m]ajor U.S. banks and securities firms are on pace to pay their employees about $140 billion this year." Referring to their appearances on yesterday's talk shows, the Washington Post headline today is that "Top aides to Obama upbraid Wall St." for bonuses after bailout. Look folks, you reap what you sow. If you don't like your current predicament, consider the alternative paths that we -- you, me, the Bush administration, everybody -- could have taken to our present position.