More Geithner

by Brien Jackson

Kevin Drum writes:

If, several weeks ago, you had charged a task force with figuring out how to successfully nationalize a big bank, what do you think they’d say you had to do? Three things, at least: (1) you have to figure out a widely acceptable way to value the toxic assets on bank balance sheets, (2) you have to set up a fair and consistent test for evaluating bank solvency based on those values, and (3) you need to make sure you have the legal authority to take over a huge, multinational financial conglomerate in an orderly way.  Is it just a coincidence that these are precisely the things Tim Geithner has set in motion over the past month?

I think that’s probably a keen observation, and I think it’s at least somewhat likely that the Obama administration is slow rolling a nationalization plan here. As Kevin and others have pointed out, there is a not un-substantial opinion that the administration doesn’t actually have the authority it would need to seize the “less traditional” aspects of the financial industry, meaning Congress would have to give it to them. And it’s not all that clear that the will for nationalization exists, at this time, on the hill. But I think the more alternatives you exhaust, the more consensus you’re going to build amongst experts, and the harder it’s going to be for Congress not to authorize nationalization. So I think that’s where we’re headed but, unfortunately, it’s a process.

As I see it, what you’ll probably have happen is the Geithner plan being put into action, possibly shoring up some firms, seperating any sound assets from the toxic assets…but still leaving a large amount of market share that needs to be nationalized, which would be much easier to do at this point. The only question, to me, is whether or not Geithner will have to be sacrificed for an increase in political capital before the larger push for nationalization. If he’s replaced with a real heavy hitter like, say, Paul Volcker, I think that could make fora much easier time of it vis-a-vis the politics.