Where’s transparency in stability plan?
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TEXT OF COMMENTARY
KAI RYSSDAL: We mentioned yesterday the Treasury Department has set up a website to let the public track which banks are getting government money and what they’re doing with it — FinancialStability.gov. I checked before I came into the studio just now. It still says “this site coming soon.”
Commentator Robert Reich says transparency’s great in theory. What’s not so good is what it will mean in practice.
ROBERT REICH: The Geithner plan for rebooting credit markets requires no new legislation, which is politically smart, because after struggling to pass the $800 billion or so stimulus package, Congress is in no mood to do more. And the public is still furious about the whole idea of bailing out Wall Street.
How does Geithner do it? By using the remaining $350 billion Congress has already authorized to bailout the Street. The public will have a better idea how this money used than they had with the first bailout. But for the rest of the $2 trillion or more that the plan will require, Geithner relies on the Federal Reserve’s seemingly infinite capacity to backstop almost anyone putting up almost any collateral. The idea is to lure private investors into buying up the banks’ toxic assets, by having the Fed limit their downside risks. If private investors pay too much, the Fed picks up the tab.
This is not a model of transparency. To date, the Fed has already committed some $2.5 trillion to rescuing the financial system, yet no one outside the Fed knows exactly how or where this money went. The Fed is subject to almost no political oversight. Yet if the trillions of dollars the Fed has already committed and the trillions more it’s about to commit can’t be recouped, the federal debt explodes and you and I and other taxpayers are left holding the bag.
In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did. They hide the true costs and risks to taxpayers of repairing the banking system. Those risks and costs should be put on the people who made risky bets on the banks in the first place — namely bank shareholders and creditors. Shareholders of the most troubled banks should be wiped out entirely. Bank creditors — except depositors — should take major hits. And top executives who were responsible for the worst of this should be canned. But it’s politically easier to put the costs and risks on taxpayers, especially in ways they can’t see.
Geithner’s plan is better than the first Wall Street bailout, but it’s not transparent, and it’s still a bailout.
RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley. He’s the author most recently of “Supercapitalism.”
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