Anger At Financial Institutions Make Temporary Takeovers The Only Politically Palatable Bailout

I wrote about this yesterday, but it is now becoming conventional wisdom. The upside to the AIG furor is that the Obama Administration, should it wish to do so, will now have a much freer hand for adopting temporary takeovers as the the first bailout option. Indeed, it seems to be fast becoming the only politically possible option. Just this morning even Joe Scarborough was advocating for temporary takeovers and "preprivatizations." The Adam Nagourney writes:

The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda. . . . Mr. Obama’s aides said any surge of such a sentiment could complicate efforts to win Congressional approval for the additional bailout packages that Mr. Obama has signaled will be necessary to stabilize the banking system.

. . . [T]he financial crisis is the most acute problem facing the administration, one it will not be able to play down. Christina D. Romer, the White House’s chief economist, said Sunday on “Meet the Press” on NBC that the administration was close to unveiling details of its plan to remove the worst of the bad assets from the books of banks, a move sure to refocus attention on winners and losers from bailouts.

(Emphasis supplied.) In my opinion, this is a good thing. The Obama Administration has been entirely too timid in its approach to the financial crisis. Here is a case where angry populism could force the Obama Administration to do the right thing, something it has been reluctant to do - temporary takeovers of insolvent financial institutions.

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    Do it now. Stop the ripoff! (5.00 / 3) (#2)
    by magnetics on Mon Mar 16, 2009 at 08:36:21 AM EST

    Stop the ripoff is right... (none / 0) (#3)
    by kdog on Mon Mar 16, 2009 at 08:39:50 AM EST
    I just don't know if government control will stop the ripoff or merely allow it to continue under a new brand name.

    Ding (none / 0) (#4)
    by Wile ECoyote on Mon Mar 16, 2009 at 08:44:31 AM EST
    we have a winner.

    The details are still fuzzy or not known--If WH (5.00 / 2) (#5)
    by jawbone on Mon Mar 16, 2009 at 08:58:50 AM EST
    goes with the plan to guarantee buyers of the toxic paper no losses (plan seems to be if toxic papers' worth goes up, they win; goes down, they get made whole by taxpayer money--lemon socialism indeed: Privatize profits; socialize losses), I think the public will be furious.  

    But since the details are so fuzzy there's still time for the Obama, Summers, and Geithner to change the plan.

    Stand by....

    No Company should be so (5.00 / 3) (#7)
    by GeorgiaE on Mon Mar 16, 2009 at 09:08:02 AM EST
    powerful that it can bring down the entire financial system and economy of the USA.  One of my co-workers call this financial crisis "The Mafia in suits". This crap did not happen overnight.

    Like what your co-worker says (none / 0) (#16)
    by cal1942 on Mon Mar 16, 2009 at 03:24:45 PM EST
    In a way the financial industry did use some mob philosophy.

    The mob capitalizes on both greed and acquisition of the forbidden.

    Lots of capital out there wanting huge return on the invested dollar; create a 'product' to sell.


    What doesn't make sense to me is (5.00 / 4) (#10)
    by BobTinKY on Mon Mar 16, 2009 at 09:40:24 AM EST
    but for the Government's injection of public funds AIG would be unable to honor any contractual commitments that require bonuses be paid to executives.  So why can't the Government prescribe the purposes for which these monies are being made available to exclude payment of bonuses?

    If Obama and Geithner do not get out ahead of the public outrage on this then not only will further bailouts be non-starters, so will government receivership which is where we shoudl eb going.  All government efforts to further prop up these companies will become politically toxic with dire consequences for the economy.

    Why trust inept, & in the yes of many corrupt, administrators to fork over hundreds of billions more?  This is the question more and more voters will be asking unless Obama forcefully addresses this matter soon.

    Government Failure at the Outset... (5.00 / 1) (#13)
    by santarita on Mon Mar 16, 2009 at 11:11:56 AM EST
    was not knowing the nature of the commitments made to employees re: bonuses before the government made the initial revolving line of credit  and imposing appropriate conditions on the draws regarding use of funds.  

    Forcing AIG into bankruptcy would be a way of voiding or modifying contractual obligations.  But AIG bankruptcy is precisely what the government is trying to avoid in order to prevent the collapse of several large banks and insurance companies and the wrath of sovereign wealth funds (and their governments).



    They need to not be timid (5.00 / 5) (#11)
    by andgarden on Mon Mar 16, 2009 at 09:51:27 AM EST
    I'm reminded of when Gordon Brown nationalized Northern Rock last year. The Tories tried to make hay out of that but got nowhere.

    Don't apologize, just fix it!

    beware the siren call of (5.00 / 1) (#12)
    by cpinva on Mon Mar 16, 2009 at 10:41:58 AM EST
    conventional wisdom

    the only way nationalizing banks will be palatable to the general public, is if none of the responsible parties (management, sh's, brokers, borrowers) profits, at all.

    there are laws preventing you from profiting from your illegal acts. why should you, at the tp's expense, profit from your overweaning greed and stupidity?

    the removal of "toxic" assets, from bank balance sheets, should result in zero profit for the bank. the forgiveness of debt (should there be any), is a taxable event to the debtor (with some exceptions), something i've not seen mentioned once, by anyone, in all of this.

    the losses recognized by the banks, in the write-downs of loans, are deductible on their tax returns. the excess NOL will then be carried back to prior, profitable years, for refunds. also sure to raise the ire of the masses.

    perhaps, a change in the code, exempting losses incurred, on written-down loans, purchased by the gov't, from providing any direct tax benefit to the banks, will keep the angry villagers, pitchforks and lit torches in hand, from assembling on congress' front lawn?

    Not Hard to Figure Out (5.00 / 1) (#15)
    by Missblu on Mon Mar 16, 2009 at 11:40:26 AM EST
    IMO this accounts for so much of the unbelievable actions taken on their behalf.  One reform or CHANGE that would help so many things would be public financing of Federal elections. Think about it.

    From OpenSecrets.org. today.  

    Before the Fall,
    AIG Payouts Went to Washington

     by Massie Ritsch on March 16, 2009

    As long as everyone's talking today about AIG's payouts to its executives and foreign banks, let's remember the payouts AIG has made over the years to politicians. In the last 20 years American International Group (AIG) has contributed more than $9 million to federal candidates and parties through PAC and individual contributions. That's enough to rank AIG on OpenSecrets.org's Heavy Hitters list, which profiles the top 100 contributors of all time.

    Over time, AIG hasn't shown an especially partisan streak, splitting evenly the $9.3 million it has contributed since 1989. In the last election cycle, though, 68 percent of contributions associated with the company went to Democrats. Two senators who chair committees charged with overseeing AIG and the insurance industry, Sen. Chris Dodd (D-Conn.) and Sen. Max Baucus (D-Mont.), are among the top recipients of AIG contributions. Baucus chairs the Senate Finance Committee and has collected more money from AIG in his congressional career than from any other company--$91,000. And with more than $280,000, AIG has been the fourth largest contributor to Dodd, who chairs the Senate's banking committee. President Obama and his rival in last year's election, Sen. John McCain (R-Ariz.), are also high on the list of top recipients.

    AIG has been a personal investment for lawmakers, too. Twenty-eight current members of Congress reported owning stock in AIG last year, worth between $2.5 million and $3.3 million. Sen. John Kerry (D-Mass.), one of the richest members of Congress, was by far the biggest investor in AIG, with stock valued around $2 million.

    The 11 dimensional chess ... (none / 0) (#1)
    by Robot Porter on Mon Mar 16, 2009 at 08:36:04 AM EST
    advocates will say this was the plan all along.

    Though that's really hard to believe given all the nationalization bashing the Obama administration indulged in.

    But I don't really care as long as it gets us to the right policy.  And we seem to be headed in that direction.

    The really strange thing (none / 0) (#14)
    by Socraticsilence on Mon Mar 16, 2009 at 11:22:50 AM EST
    is that on a lot of the 11-dimensional stuff the more fervent people have been right (not on all of it but on some- certainly not in this case, but look at the Limbaugh thing- a couple of off-ahnd remarks at a press conference and a little pushing and the GOP is basically self-immolating- they're leftembracing a bigot addict possible sex tourist- and their chairman standing is even worse- they either continue what has become a running joke or take an action which may not even the most anti-GOP of us could have scripted: fire their first AA chairman after a month in favor of a man from the birth place of the confederacy who only left his all-white country club just recently a farce whose optics are unbelievably good for us.  

    I don't think so (5.00 / 2) (#17)
    by cal1942 on Mon Mar 16, 2009 at 03:39:15 PM EST
    The GOP was heading toward self-immolation before Obama and their continued rush towards irrelevance is more a matter of their destiny.

    If anything Obama has seemed more inclined to throw them a lifeline.


    The details are still fuzzy or not known--If WH (none / 0) (#8)
    by jawbone on Mon Mar 16, 2009 at 09:17:31 AM EST
    goes with the plan to guarantee buyers of the toxic paper no losses (plan seems to be if toxic papers' worth goes up, they win; goes down, they get made whole by taxpayer money--lemon socialism indeed: Privatize profits; socialize losses), I think the public will be furious.  

    But since the details are so fuzzy there's still time for the Obama, Summers, and Geithner to change the plan.

    Stand by....

    too little too late (none / 0) (#18)
    by souvarine on Mon Mar 16, 2009 at 04:58:59 PM EST
    The administration's response still seems half-hearted to me, and too little too late with respect to AIG specifically. Obama has left himself wide open to a populist challenge, the only question is will the now fractious Republicans seize the opportunity. So far they seem so mired in their own confusion that they will let the opportunity slip by.

    I think this goes under "Make me do it" (none / 0) (#19)
    by msobel on Mon Mar 16, 2009 at 08:34:51 PM EST
    I think he has been waffling because this is one of those easy to call socialism actions.  Look at the CW two months ago vs today and you can see that he is in a position to be much stronger with the banks.

    He is (to paraphrase Lenin) giving the banks enough rope and they are hanging themselves.

    government banks (none / 0) (#20)
    by diogenes on Tue Mar 17, 2009 at 02:49:37 PM EST
    Is this like the government banks in China that are forced to lend money to state industries?  Are the government banks going to be forced to lend money to the likes of Chrysler or GM?  Or, like Fannie Mae, to provide mortgages to poor risk customers due to a "government mission"?