I'm generally a defender, with various caveats, of Treasury Secretary Tim Geithner's response to the financial crisis (or, as some commenters suggest, a stooge of the financial industry). But this point from Simon Johnson is very important for those of us trying to understand if the administration is really prepared to address the situation correctly:
The most compelling evidence for lack of readiness comes from those who are now most articulate in Treasury’s defense. “Congress will not provide any more money” and “you must recognize the political constraints” are sensible points. But think about what they also imply. Treasury is not making the case, full-time and flat-out, for more funding - on a contingency basis - from Congress. At least from my conversations on Capitol Hill, I see no signs that this is Treasury’s top priority. In fact, I would go further and be blunter: no one is ready.
I'd temper Johnson's argument -- the administration did, after all, put a $250 billion placeholder in their budget for future financial institution backstopping, although they're not fighting very hard for it in the legislative process, and they have asked for authority to take over complex financial institutions. But overall Johnson is right that Treasury has not been doing enough to get ahead of the ball in a public way and create the framework to request future funding for the larger intervention that seems increasingly inevitable.
But some of the responsibility has to be on congress as well. Dean Baker e-mailed the other day wondering why no legislators have asked the Congressional Budget Office to score the costs of the various national recievership models that will become necessary in the event of serious bank collapses -- there are members of congress who understand this could be coming down the road and would be wise to start getting their ducks in a row. Similarly, in the past I've argued that economists criticizing the administration's approach would do well to start lobbying relevant members of congress about the costs of a more aggressive response to the financial crisis, since that is the body where the primary obstacle -- appropriating the billions of dollars needed to restructure the banks -- is found.
-- Tim Fernholz
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