What’s really striking is how nobody seems to think that the new Obama-Geithner bailout plan, consisting of more backstops, insurance, guarantees, toxic asset purchases and capital injections will do anything but prolong the pain. Yves Smith had a great tirade against it, earlier this week, and today there’s a great read from Roger Ehrenberg, who says we’ve just returned to Dubya:
And let’s not forget these not-so-trifling issues:
- Banks with toxic asset-laden balance sheets will still be reluctant to lend, even with Government capital injections. And forcing them to lend will only put us right back in to the world of the GSEs (Fannie Mae, Freddie Mac), which may well cost taxpayers several trillion dollars.
- Bad managements will still be running the show, even after losing billions or even tens of billions of dollars.
- Common equity holders and debt holders are still being bailed out, perpetuating a moral hazard that should have ended months ago for many (Citi, BofA, etc.).
Have we learned nothing over the past six months? The ideas being proposed simply won’t work, and I don’t care which Harvard Ph.Ds are saying so. It is a matter of transparency. It is a matter of good governance. It is a matter of creating healthy institutions that are in a position to fund the renewal and growth of this country. Current plans do not contemplate any of these things. Why not? That is a mystery. President Obama has his chance to take a stand, the right stand, and I’m afraid his first big step forward will in fact be two steps backwards. And the country will suffer for it.
It’s truly amazing how little management turnover we’ve seen at the top. We’ve not only eliminated the Darwinian aspect of capitalism, whereby bad institutions disappear to create breathing room for healthy ones, but we’ve not even seen substantive changes at the bad institutions. Just the same, overly-aggressive, risk takers like Ken Lewis, whose over-confidence and growth-at-all-costs mentality killed his shareholders. Hello zombie banks.