Monday, March 16, 2009
The Huffington Post
In the past two weeks, political support for the Tim Geithner/Larry Summers approach to solving the banking crisis has been unraveling in Congress, with blistering criticism from legislators of both parties.
The financial danger is that the Treasury will burn through the money approved by Congress without fixing the system. The political danger is that Republicans will posture as the populists, expressing faux-indignation that so much taxpayer money has gone to Wall Street. The overarching risk to Obama's presidency is that the plan won't work, and his political capital will evaporate along with the financial capital.
There is a whole other path to repairing the banking system, and a whole other set of experts, equally brilliant and better in touch with financial realities. But their unfiltered views are not reaching the president. This loyal opposition, of which more shortly, is not limited to lefties; it spans the ideological spectrum.
Though the details are numbingly technical (and deliberately mystified both by the investment bankers and their allies at the Treasury), the basics of what's wrong with the banking system and how to fix it are, at bottom, very simple.
After all, what do banks do? They take in deposits and they put out loans and make other investments.
In the past decade, far too many of the banks' investments were far too speculative. They lost vast sums, which now exceed the value of their capital. In plain English, they are insolvent....(Click for remainder).