Interesting how times of trouble allow us to reveal deep rooted personal biases. The US is facing the seizure – on a massive scale – of its credit markets, caused by the reluctance of banks to face the reality of their toxic assets, and to take on more risk by making new loans.
Obama promised change. Many hoped that this meant that his administration would show flexibility in solving existing problems, as well as problems brought on by the financial meltdown we have just seen.
But the bedrock prejudice of Obama's administration is showing in its reaction to the toxic assets.
It is best summed up by this statement of his former Wall Street whizkid, Treasury Secretary Geithner:
"“We are the United States of America, we are not Sweden,” the Treasury chief said.""
Why did Geithner say this?
Because some critics have argued that the Government of the US should solve the problem by nationalizing the banks, replacing the dumb bankers who caused the problem and who still sit in control of the banks and the banking system, and then later on selling of the banks once they have been fixed up:
""Critics including Paul Krugman, a winner of the Nobel Prize for economics, advocate that the government take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted that approach in the 1990s. Krugman said in a New York Times opinion piece today that Geithner’s strategy won’t work because it “assumes that banks are fundamentally sound and that bankers know what they’re doing.” Geithner said today that his plan was the best of a limited number of options, including leaving the illiquid assets on banks’ balance sheets or having the government itself buy them all, shouldering all the risk."
What a pity that Obama is following such a blinkered approach to this critically serious problem.
