The Obama administration finally unveiled its plan for addressing the faltering banking system. It is something of a hybrid plan that seeks to marry government muscle and private investors into a mechanism that would allow troubled institutions to rid themselves of toxic assets while generating new investment that will help get the economy moving again.
That’s a terribly simplistic explanation of a rather complex strategy. The proposal, crafted by embattled Treasury Secretary Tim Geithner, has drawn mixed reviews from Capitol Hill and from economists and pundits, but it won raves on Wall Street — the Dow Jones shot up nearly 500 points Monday — and from the world markets.
One of the curious issues here is how we the people — we the mob, if you will; or we the enraged masses — will not only react to this plan but, in a broader sense, how we will cope with our own impulses as this messy process untangles itself.
Some people were grumabling after Wall Street’s flourish Monday, citing the big rally that excited the financial types as proof somehow that Geithner’s plan was a bad idea because it pleased the fat cats. But as some economists pointed out, the plan cannot work — and our economy cannot turn around — without the confidence of investors, and those investors appeared extremely confident Monday. Like it or not, we need that.
Some economists (notably Paul Krugman of the New York Times) have criticized the plan because it failed to do what they believe must be done, which is to nationalize the banks and straighten them out. But what’s lost in the nationalization argument is the fact that it takes a lot of people — really, A LOT of people; it could practically be its own stimulus works program — to nationalize even one bank, sifting through the books and finding where the proverbial bodies are buried. For the government to nationalize all the major, listing players would be a titanic task that would shake investor confidence and sink Wall Street — and the portfolios of millions of people, from high-stakes players to 401K holders — to gut-wrenching depths.
And frankly, there is also a question of practicality. As economics columnist Steven Pearlstein of the Washington Post noted Tuesday, nationalization would put “the government in the uncomfortable position of managing large and complex businesses with 535 members of Congress suddenly sitting on their boards of directors.” That’s not the most encouraging scenario.
Will Geithner’s plan work? Is it the product of someone who’s really just a Wall Street insider protecting his own? Or is it the design of someone who knows the world financial system perhaps better than anyone else at our disposal?
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