Economist William Black accuses Obama Admin of breaking the law...

[Larkspur]

With the passion of an Old Testament Prophet admonishing the Kings of Israel for breaking the Covenant with God, William Black, Associate Professor, Economics and Law, University of Missouri warns that the current banking crisis and an inappropriate response to it can destroy Obama's Presidency in an interview in this week's Barron's.

We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? If they are going to get any truthful investigation, the Democrats picked the wrong financial team. Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Geithner is mistaken when he talks about making deeply unpopular moves. Such stiff resolve to put the major banks in receivership would be appreciated in every state but Connecticut and New York. His use of language like "legacy assets" -- and channeling the worst aspects of Milton Friedman -- is positively Orwellian. Extreme conservatives wrongly assume that the government can't do anything right. And they wrongly assume that the market will ultimately lead to correct actions. If cheaters prosper, cheaters will dominate. It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.

His plan essentially perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent.

[Jackpine Radical]

1. I cannot imagine what Obama is expecting to happen in the financial sector.

I'm not an economist, can't really say that I understand economics, but I've read a little Keynes and a little Friedman, along with a little Galbraith pere here and there. Krugman, Stiglitz, Black & Galbraith fils make sense to me; Friedman, Greenspan & the whole Chicago School seem to me to have elevated psychopathy on the grand scale into a virtue. I was desperately hoping that Reich was right in his argument that Obama is a Keynesian under the glitter, but dammit, that hope seems more chimerical every day. From my seat on the bench, it's hard not to see the likes of Geithner and Summers as evil incarnate.