The Geithner Plan and Congress
One aspect of the Geithner plan that I think people aren’t focusing enough attention on is that unlike the other main alternative approaches, it can be executed without further congressional approval. The reason is that there are federal agencies with a standing authority to make loans. And though the plan does have a potentially giveaway structure, technically what’s being offered aren’t subsidies but no recourse loans. Or to put it another way, the subsidies are in the form of no recourse loans rather than direct appropriations, so the government has the authority to move forward under existing TARP legislation and other laws. That, I think, clearly explains the somewhat byzantine structure of the plan’s operations and is also, if you’re sitting in the West Wing, a considerable advantage over a nationalization plan that would require large additional appropriations to cover the debts of nationalized institutions.
That’s all a bit on the underhanded side, and it certainly doesn’t count as a good economic reason to do things this way. But could it be a good reason, in general? Arguably, it is. In addition to a financial crisis, we have a crisis in our health care system and an ongoing climate/energy crisis. One thing you might want to consider as you read Paul Krugman’s columns is how you would feel about the idea of the administration burning political capital on the Hill to secure authorization for bank nationalization that could otherwise be used to secure support for the administration’s health care and energy policies.
I’m not even sure, personally, that I believe in the “political capital” metaphor. But people in Washington generally do. And if you’re Barack Obama and getting conflicting advice on the merits, I can easily see this kind of calculation tipping you toward conserving your chits on the Hill for the budget battle and related fights.
31 Responses to “The Geithner Plan and Congress”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
March 23rd, 2009 at 10:21 am
Unless of course the non-Congressionally-approved plan fails to do what it needs to do. Then there may be a drastic lack of both political and real capital. This sort of argument depends on the assumption that this sort of administration action will work on the financial system. If I weren’t worried about that assumption, I would care a great deal less about the particular form or process of the program to address the financial system.
March 23rd, 2009 at 10:22 am
“That’s all a bit on the underhanded side, and it certainly doesn’t count as a good economic reason to do things this way. But could it be a good reason, in general? Arguably, it is.”
It’s just like how you thought the Iraq war was arguably a good thing, Matthew.
March 23rd, 2009 at 10:26 am
Glad to hear your skepticism about “political capital”. I agree that it is a stupid metaphor for how programs are enacted – it seems like there ought to be at least some accounting for momentum.
March 23rd, 2009 at 10:26 am
Of course, without pressure to do more from people like Paul Krugman and Matt Yglesias there will never be enough political capital necessary to nationalize banks.
March 23rd, 2009 at 10:30 am
Aside from the issue of “political capital” – which, i agree, is overrated– there is the “sausage factory” issue. That is, getting Congressional authorization will, be slow, contentious, and there is a strong likiehood that the administration won’t get exactly what it wants,– that Congressional grandstanding and porkbarrelling will distort the nationalization (or whatever) rendering it less effective.
March 23rd, 2009 at 10:30 am
Because Nancy pelosi was so stupid the first time we are stuck for all time?
Why not have Pelosi change the TARP law for the sake of her progressive constituents? Or is it that her voters in San Francisco believe in total socialism, subsidies for the rich and poor. I am not sure how some poor slob in San Francisco is better off guaranteeing trillion in debt because Nancy made a bonehead move.
March 23rd, 2009 at 10:32 am
“One aspect of the Geithner plan that I think people aren’t focusing enough attention on is that unlike the other main alternative approaches, it can be executed without further congressional approval.”
Sure, I mean when you’re going to commit the taxpayers to another $trillion dollars, the last thing you want is a public debate. Hitler and Stalin knew the advantages of such a philosophy.
March 23rd, 2009 at 10:33 am
Obama’s fear of breaking up the big banks is all very reminiscent of LBJ’s fear of a RW backlash from pulling out of Vietnam.
LBJ’s failure of nerve led to the stagflation of the 1970s, among other things.
Obama’s failure of nerve will likely lead to this country going literally bankrupt.
March 23rd, 2009 at 10:33 am
Bingo!
Obama didn’t come to Washington to fix Wall Street. He came there to fix health care, energy, and education.
Now, there’s a fair argument to be made that he’s missing an opportunity here to re-structure the long-term inequality of the wealthiest class and the middle class. But this demands you believe that the inequality created in the past decade was true inequality in distribution, as opposed to a paper inequality created by the fact that guys on Wall Street were engaging in tulip schemes. There’s evidence both ways (the productivity one is critical and IMHO tips the scales in the “they’re stealing the middle class’ bucket” direction, but I can see actual economists coming out a different way.)
But there’s also a fair argument that if we make the fundamentals of our economy stronger, this won’t matter so much, and it also will be harder to get away with. A cheaper and higher-quality health care system that’s affordable to all is eminently doable, so long as we put down myths that an ungoverned healthcare market is a healthy market. The biggest economic gains the human race has ever seen have all been secondary to development of new energy sources (the industrial revolution was incredible not because of the assembly line, but because we figured out better and better ways of burning dinosaur poo). And education always, always pays off–not just in “discoveries,” but in social stability and general happiness measures.
He’s approaching this in a very non-Marxist way. The goal here isn’t for government to referee the class struggle. It’s to change the rules of the game and so indirectly combat the bad things that result from class differences–dying of horrible disease, having less material comfort, and being un-connected to your society and unable to enjoy it and productively contribute.
It’s actually quite fascinating. I’m not sure if I agree, but it is interesting to see that he simply WILL NOT be dissuaded from the goals he’s long thought were most important. If most politics is like a 5 year old’s soccer game, he’s odd in that he’s playing his position. Heck, he’s the little goalie who’s moving the fenceposts of his own goal closer together as everyone else watches the action down at the other side of the field.
March 23rd, 2009 at 10:35 am
It could also be a way of spurring on organic Pelosi(Frank/Reid/whoever)-Graham nationalization momentum in Congress.
March 23rd, 2009 at 10:41 am
If you spend the amount of money they’re talking about, you’re burning political capital even if you aren’t having to go through congress.
March 23rd, 2009 at 10:45 am
цитируем…
One aspect of the Geithner plan that I think people aren’t focusing enough attention on is that unlike the other main alternative[...]…
March 23rd, 2009 at 10:47 am
Re DTM at 11: “One of the reasons the Geithner plan didn’t require additional appropriations is that it might not cost the government much money.”
——————–
Wasn’t that the same approach that was followed with Fannie Mae-Freddie Mac? The government guarantees that weren’t really government liabilities or debt?
So how did that work out?
March 23rd, 2009 at 10:51 am
As an Administration supporter it seems nevertheless that this plan is starting to make the invasion of Iraq look like a shining example of open debate and democratic legitimacy. Running a multi-trillion dollar program without Congressional approval: it would make Cheney proud.
Which may just be the way the American system functions.
March 23rd, 2009 at 10:51 am
Yeah, on the one hand the insiders talk about “political
capital”; and on the other hand they talk about how important
it is to win each legislative fight rather than be perceived
as a loser. But those two views are just about directly
opposed: the “political capital” metaphor assumes that you
have a fixed stock of capital that you should spend carefully;
the “being a winner” metaphor assumes that winning one fight
puts you in a stronger position to win future fights, i.e.
that it’s easy to get more “political capital” just by winning.
It makes no sense.
March 23rd, 2009 at 10:55 am
Taking Matt Taibbi’s point – that the Paulsen plan was a vast looting scheme undermining democratic institutions in a way never seen before – and turning it into a plus for Obama is, well, remarkable.
The neo-liberal dream of technicians taking on and doing the “right things” has been a curse since the end of WWII. That MY, so young, is yet so old in wanting a Wise Man approach,, shows just how pernicious the D.C. culture is.
In truth, Congress can investigate, can legislate, and can stop this horrendous plan. It can for instance demand of the FDIC where, precisely, it got its 800 billion dollars.
I can see that Krugman – who is justly appalled by this shell game – is now “problem”. And that MY is going to – dreadfully – go along the Daschle strategy. Just as we had to vote for the President’s authorization to go to war in 2002 cause it was all really about saving social security, now we have to go along with a false bottomed and delusional plan to feed the wealthy the credibility of the FDIC and the remains of TARP so that we can get, uh, health care!
Firedoglake is starting to organize against the plan by getting people to call Congress. The Dems look like they are going to roll over for this sad con game. Unfortunately, unlike the Iraq war, the damage is going to be immediate, here – as we buy (the euphemisms are hilarious) “legacy loans”. Instead of “mortgage backed assets” – I guess they group tested that and found it was still too scary.
I’m looking forward to seeing MY pick up and distribute the Geithner euphemism. It will be funny.
March 23rd, 2009 at 11:15 am
I, yes a nobody, have been preaching that among other things what we are watching is a naked power grab. It is about raw power. The financial sphere has totally captured the Treasury of the United States. Totally. This must be appreciated.
The whole thing was apparent when Paulson took over the Treasury way back in 05. There was nothing secret about it but nobody cared to look.
Of course congress has been sidestepped. It made itself irrelevant long ago.
March 23rd, 2009 at 11:17 am
Was this message approved, Matt?
March 23rd, 2009 at 11:20 am
Impeachment proceedings should be started against Geithner. Then subpoenas can be issued for all the information on the Treasuries dealings. Especially among the GS rats.
Won’t happen of course.
March 23rd, 2009 at 12:01 pm
There are many things I don’t like about the U.S. Constitution, and would change if I could. (The existence of the Senate, the Electoral College, and the lack of an explicit right to privacy are some imperfections that come to mind immediately.)
But the requirement for Congress to appropriate funds is something that should exist in a democratic republic. Short-circuiting that by pretending that the handouts aren’t really handouts is unconstitutional and wrong.
March 23rd, 2009 at 12:01 pm
I, yes a nobody, have been preaching that among other things what we are watching is a naked power grab. It is about raw power. The financial sphere has totally captured the Treasury of the United States. Totally. This must be appreciated.
The financial sphere has imploded. Lehman gone. Bears Stearns gone. etc. etc. etc. I have an aquaitance who was living large during the boom, but is now out on his ass with no job, like many others.
All of the bailouts have occurred so that the global economy doesn’t sink into a deflationary trap. Maybe we’ll get to that point despite the bailouts. Cross your fingers cause then you’ll really be able to bitch!
March 23rd, 2009 at 12:36 pm
Pay Bill Gross so he will give me a bonus
March 23rd, 2009 at 12:37 pm
The legacy assets/securities program seems simple and market driven, unlike the criticisms offered by many I have come to trust.
The hedge funds will hold the assets/securities for a long time, this is good. long term mortgages should not be held by those who only have short term goals.
The funds will leverage private capital. That means the private investment could evaporate with a small loss in value, so the private investors will not overpay for the assets/securities.
March 23rd, 2009 at 1:32 pm
One aspect of the Geithner plan that I think people aren’t focusing enough attention on is that unlike the other main alternative approaches, it can be executed without further congressional approval. The reason is that there are federal agencies with a standing authority to make loans.
This is the key problem of both the plan and the American system. Because the president is not a prime minister, he can not get the necessary support to do things like either nationalize the banks or let them fail (both of which are preferable to the current plan). So he has to do things like this.
This is an end run around the democratic process. What the gov’t is doing is committing itself to underwriting any losses that the investors experience in the future. Since there are guaranteed to be losses, the gov’t is committing funds to do that without any Congressional approval about those particular funds.
This should worry people care about democratic theory.
March 23rd, 2009 at 4:29 pm
Matt said: I’m not even sure, personally, that I believe in the “political capital” metaphor.
When I was younger, I thought of this in terms of how much a legislator was willing to piss off her/his constituents before digging in the heals.
I still think this is true to an extent, but I think the main driver is favor trading, and the perception of influence. If I agreed to pass the last X bills with language the President preferred, and I still haven’t gotten a ride on AF1, then that next bill can rot in email for eternity.
March 23rd, 2009 at 6:02 pm
Buy Viagra…
http://url.edna.edu.au/4bbN Buy Viagra…
March 23rd, 2009 at 6:46 pm
Yglesias, you are the classic Political Thinker thinking his political thinking ability allows him to understand economic matters. It doesn’t work that way. Politics is controlled by economics and until you understand, for instance, how a nationalization would work (i.e. we DON’T guarantee debts, they are instead wiped out hence it is a managed bankruptcy) then you really are not equipped to discuss big-boy matters like how macro-economies work and the real-world economic dangers of moral hazard and the effects of large, unsecured borrowing on world bond markets. And if those things are not resolve properly then there will be no money for health care or energy policy. We need foreign money to continue flowing into Treasuries and writing 2 trillion dollars of new debt [note of perspective: W came into office with 5.5 trillion in debt on the books] in a week will not do that.
Tim Geithner is a financial suicide bomber.
March 24th, 2009 at 9:20 pm
Buy Propecia…
http://www.folkd.com/user/buypropeciaonline Buy Propecia…