The Case For The FDIC Over Tim Geithner
No Associated Press content was harmed in the writing of this post
On Tuesday the Washington Post reported on an effort by the Obama administration to get some new powers from Congress: the ability to seize control of certain non-financial entities like insurance companies and hedge funds. Coming a day after Tim Geithner's poorly received plan for Bailout II the timing could not have been much worse. Many economics and finance experts - those who have credibility by virtue of having sounded the alarm when the party was in full swing - such as Duncan Black and Paul Krugman have emphatically rejected the plan. Yves Smith wrote "Given the lack of any mention of a special resolution regime, or intent to develop one, the point of this bill is...to get broader authority to bail [firms] out." Joseph Stiglitz called it outright theft. (Very important exception: Nouriel Roubini has given his qualified approval.)
Yet the president wants the author of this plan to have a wealth of new powers, and exuberantly claims "I think [he] is doing an outstanding job" (which has unnerving echoes of Brownie's heck of a job). Geithner does not need votes of confidence at this point. He needs instead to find a monastery in some distant and isolated land, go to an empty room in a quiet and remote part of it, unroll a somewhat comfortable rug, sit on it and meditate until he is able to envision a world without Goldman Sachs. More bluntly, he comes across as someone narrowly locked into one specific way of seeing the world, and this poverty of imagination is forcing him to offer the same solution over and over.
It may not be a coincidence that the inability to think creatively is so proximate to the claimed need for more power. Perhaps Obama's economic team is crippled by the same sclerotic thinking that infected the Bush administration's national security team, which seemed to manifest itself in a never ending list of demands for more power. It leads to the following proposition: The amount of authority an individual claims to need to do a job is inversely proportional to his or her competence. Extravagant requests are more likely to be born out of insecurity (beforehand) or guilt (afterwards). While not strictly true, it may be a good rule of thumb. The good ones pay attention even when not under scrutiny and make do with what is at hand.
Previously it was the need for basket warrants, the obviating of FISA, the wholesale sweeping of electronic communication, and so on. The message was always the same: We urgently need these to keep America safe, with the implication that if they had been there all along maybe 9/11 would not have happened. Compare to now: We urgently need these to properly regulate the financial system, with the implication that had they been there all along the financial meltdown would not have happened. But as Marcy Wheeler points out in a great overview of Matt Taibbi's Rolling Stone piece, the biggest problem at Treasury was the inability of the modestly scoped Office of Thrift Supervision to keep up with the wave of new responsibilities deregulation flooded it with. Which may have been by design. But in any event the issue was not an inability to seize control of these businesses.
The biggest problem with the proposal, though, is that it seeks to vest large new powers in the executive branch when we already have a well functioning agency to model it on. According to its site the FDIC is an "independent agency of the federal government" that is "managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate." Look at the list of banks it has taken over in the last couple of years. Have they been controversial? Has anyone claimed political motives, corruption or incompetence with any of them? It seems to be an agency that focuses very effectively on its mission and manages to stay out of turf wars. Isn't it reasonable to think that its independence along with required collaboration between the president and Senate has helped make it so? Why not just plug the new oversight into a framework even the president acknowledges is working? Why put all that new authority into just one person - one who may not (ahem) enjoy the full confidence of the public or who may appear compromised by industry ties? Why attempt to cut Congress entirely out of the process? It is hard to look at this as a good faith effort to restore confidence in the financial system; it looks more like a power grab from the Bush playbook. The administration is better off not pursuing it.