breaking the bank

How We Get Out of This Mess…

Gene Sperling Adviser to Treasury Secretary Tim Geithner

Beyond fixing this financial crisis, what we're working on here at the Treasury and through this administration is how we're fixing our overall regulatory system so this never happens again. ... We think that we're going to have to have smarter regulation that looks less at what people say they're doing and more at what they're really doing. And that's going to mean higher capital requirements. It's going to be more transparency. ...

The goal is to be pre-emptive, is to make sure that you have a single regulator who can look throughout that entire institution, at every part about it, no matter how they're organized, no matter how they want to organize themselves or who they want to regulate them, so that we have the ability to detect early the type of behavior that exposes the American economy and American taxpayer to the type of risk we are suffering with right now.

Now, does that means [allowing] failure [of institutions], or does that means government taking them over to make sure [they are unwound]?

I think what it means is both having greater power to prevent these things from ever happening, and having the power, when they do happen, [of] what we call resolution authority, to resolve them in a way that poses less systemic risk to our economy. The truth is, we have a system for most companies; it's called bankruptcy. We have a system for most banks; it's the FDIC [Federal Deposit Insurance Corp]. What we don't have is a way of resolving a failed financial institution that is extremely large without exposing our economy to Lehman risk, the risk that it will unravel in a way that doesn't just hurt those who bear responsibility but hurts tens and tens of millions of Americans who have done nothing wrong.

Jeb Hensarling U.S. House of Representatives, (R-Texas); Member, TARP Congressional Oversight Panel

Tell me what you think should happen right now ... with banks and corporations in America. ...

I think there's several things we should do. ... I believe that we have a confidence problem, and we have a capital problem. Let's talk about the confidence problem, number one.

The president came here on a wave of hope. If there's anybody who can instill some hope in our economy, it's the president. And he's going to have to decide, is he going to be consistent with his message? He doesn't need to sugarcoat it, but he needs to remind the American people of the lessons of history, number one.

Number two, there is so much money sitting on the sidelines, voluntary money from investors as opposed to involuntary money of taxpayers. But it's not going to come in until they have confidence in the president's program. Here's what's missing in the president's program: ... There's no certainty. Secretary Geithner announced $350 billion in search of a program. There was no definitive quality to the so-called program that he announced, so that made investors say: "Well, we don't know what's going on here. We can't invest."

Third, I believe that unfortunately, to quote the president's chief of staff, Rahm Emanuel, "Never let a serious crisis go to waste." ... Many people throughout our nation believe the administration isn't so much solving the economic crisis but exploiting the economic crisis to put forth a liberal agenda that they've been sitting on for decades. Now, we can debate whether or not rationing health care and having federal control is a good thing, ... but is that really the road to economic prosperity? I don't believe so. ...

I would ensure that the job engine of America, small business, has more tax relief. Ultimately, the road to recovery does not lead through Washington. ... You cannot borrow and spend your way into prosperity. It does not work. ... Ultimately, we're going to have to let the forces of hard work, entrepreneurial capitalism help work our way out of this problem. ...

Austan Goolsbee White House Council of Economic Advisers

I think the inclination the president has doesn't make [him] a nationalizer. It doesn't make you anti-market to be for stronger oversight. ... We need transparency and understanding of what the conditions are of the banks. We need to recreate a regulatory framework where you don't have banks shopping from one thing to another in order to get out of regulations. You don't have insurance companies like AIG strapping hedge funds on their back like a jet pack and flying wildly around until they crash, and then come down to the government to pay the hospital bill. All of those things are part and parcel to what we need.

So you've seen a major push on the part of the administration of across-the-board rethinking of the regulatory agenda in the financial sphere as well as consumer protection and investor protections, and a major effort that we need to have a resolution facility that gives the resolution authority to the government if there is an institution that's failing ... [so] we can resolve these big institutions when things go wrong, before they spread the disease to the rest of the financial system.

Simon Johnson Former chief economist, International Monetary Fund

What does it mean to bring [the financial sector] under control?

There are some technical things. There's issues of recapitalizing the banking system, cleaning it up. ... It's not that difficult, but the politics are almost impossible, because what you're talking about is a massive change in the power structure. These banks dominate a big chunk of the American economy, and they're incredibly well-represented in Congress and in the administration. There's a culture, there's a web of interest, if you like, between these people. That is how we run the economy. It worked for 50 years. How are you going to change that? ...

I'm an optimistic, positive guy. ... It's never over. The economy's not going to end; the country's not going to break apart; we will get out of this. But we could lose a decade, and I don't see the point in not being honest with people about that.

In fact, why should you take any kind of radical, big proposal seriously unless you think there's a high probability of very bad outcomes? I think there's a dissonance there that doesn't make sense to people when you talk to them like this. ... When you hear a big speech, you might buy it for a while, but eventually you're going to say: "Well, I don't understand. Why are we doing these big things if the problem isn't that bad?"

Elizabeth Warren Chair, TARP Congressional Oversight Panel

Unemployment is going up. Core expenses are not coming down. So the American consumer, the family, the ordinary middle-class folks, they're on their knees financially.

How do we get out of this? They've been the ox that pulled the plow. They've been the consumer. You could count on them. It was safe to invest in retail. It was safe to invest in restaurants. It was safe to invest in anything they might use because they'll always get up and spend and drive this economy.

The fundamentals during the boom showed that that whole underlying economic picture was wrong. It was wrong. It was created through smoke and mirrors, through crazy monetary policy, through permitting financial institutions to keep marketing these credit products and promising profits and throwing them out into this larger marketplace, and these complex instruments and doing trades and bets off them, and pretending that that was wealth, that that was reality.

Well, the party's over. The financial institutions are down for the count. But look around the room. Basic economics of the American family have changed, and that means there's a fundamental reordering here. We can't just jump-start this. We can't just say, "You know, we'll bite our lips, and in another six months we're going to get that same old economy back." ...

We're going to make a series of decisions over the next six months to a year that are going to shape who we are as a people, who we are as a country for the next 50 years. This is our moment. We'll decide this. And what we decide will set who we become.

posted june 16, 2009

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