By: Elison Elliott
Note: This post reflects the views of the author, not those of the Foreign Policy Association. The author is an independent contributor.
Is Pres. Obama Coddling the Banks..??
In a Bloomberg interview last week, Columbia University Professor Joeseph Stiglitz, a highly regarded former chief economist of the World Bank and Nobel laureate in global economics, says the Obama administration’s plan to fix the U.S. banking crisis is destined to fail because the programs have been designed to coddle Wall Street rather than creating a viable 21st century financial system.
He noted, “All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview. The people who designed the plans are “either in the pocket of the banks or they’re incompetent” — an indirect reference to Wall Streets ‘cozy’ relationship with Treasury Secretary Tim Geithner, and Larry Summers, the President’s White House economic advisor. Stiglitz’s main contention is that in order to effectively repair our broken banking system and financial infrastructure, resorting to accounting tricks such as changing the accounting rules to make some banks “appear” profitiable when in actuality they are functionally insolvent and incapable of making sufficient loans to revive the system, makes the plan doomed to fail in the long run.
As other influential economists, policymakers and financial executives have argued recently — convincingly in my opinion — TARP II, the PPIP program, and other policy changes do not hold banks and investment firms sufficiently accountable for crippling the nation’s financial system, while hoisting the risk burden of their toxic assets on the backs of taxpayers. And despite the falsely rosey picture the big banks are reporting in their 1Q performance figures, credit channels continue to be a tight spiggot, choking off funding options for businesses, project funding and capital investments — even for the best credits. In addition, the Obama Administration’s policy so far amount to ‘corporate welfare’ for a notoriously conservative, anti-welfare industry, and have served only to privatize bank profits (25% Gov’t – 75% Banks), while socializing bank risk and losses (92% Gov’t – 8% Banks). This, Stiglitz says, is fundamentally flawed and unfair to taxpayers. Read the Bloomberg story here.
