We’ve been pretty harsh critics of Tim Geithner and the way the whole banking bailout’s. And it’s pretty awesome that in this country, the government will hire its own watchdogs and critics, even if they can be toothless.
But a number of commenters are making some pretty compelling arguments that TARP watchdog Elizabeth Warren is blowing her credibility in the manner she’s going after Geithner. The thing is, Warren’s job isn’t to be a shadow Treasury Secretary. It’s not her job to decide the best way to bailout the banking system. That’s not what she was asked to do, nor (perhaps more importantly) is it her area of expertise.
Thomas Cooley at Forbes breaks down her latest report:
The report essentially argues for nationalization on the grounds that, under government reorganization, bad assets can be removed, failed managers can be ousted or replaced and business segments can be spun off from the institutions. “Depositors and some bondholders are protected, and institutions can emerge from government control with the same corporate identity but healthier balance sheets,” the report argues, parroting a position that has been staked out by many prominent economic pundits.
Clearly, this is Elizabeth Warren’s particular crusade against the banks, since a majority of panel members dissented from the direction the report took and two refused to sign off on it at all. Her letters to Secretary Geithner and Chairman Bernanke stop just short of attacking them for trying to restart the market for asset-backed securities. These markets have been an important part of the financial intermediation system for decades, funding student loans, consumer credit and small businesses. But Professor Warren has had a long-standing antipathy to consumer credit markets.
Megan McArdle at The Atlantic weighs in as well:
This is wildly inappropriate. Elizabeth Warren knows a lot about bankruptcy–but just because it has the word “bank” in it, doesn’t make her an expert in banking. Her specialty isn’t even in corporate liquidations; she mostly writes about consumer bankruptcy. The highly specialised world of bank resolution is not one where she has, as far as I can tell, very much expertise.
Moreover, this isn’t her job. Her job is to watch where the TARP funds go and monitor their effectiveness, not lecture Congress on how hard to punish wayward bank executives.
We seem to have lost an oversight panel, and gained another voice shouting slogans at congress.
And Eric Falkenstein finds her arguments to lack depth:
She’s an unqualified advocate for the little guy in the most direct way. So, anything that would cost such individuals more, or take away their power in a negotiation, is considered bad. Such thinking is antithetical to economics, because good economics looks at the unseen as well as the seen, indirect effects, which are often effects on future behaviour via the incentives of the rules. Her arguments always have the flavour of intelligent but ignorant earnest students in High School sociology classes: businesses should be forced to lower prices and raise wages and benefits. I guess her template is India or Venezuela. She is a caricature of a simple minded do-gooder because the solution to every problem as merely having a large organisation write a check or give stuff away. She takes the size of the economy, its production of goods and services, as a given.
She’s on TV shows all the time because journalists and left-wingers agree with her conclusions, and she’s from Harvard, so she can make an absurd statement and get away with it because we all know Harvard contains only the Best of the Best in thought. She contributed to John Edward’s book, Ending Poverty in America published in early 2007, which argued for more home ownership in America via what came to be known as NINJA loans.
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