Bill Moyers on PBS, February 13, 2009
On Tuesday, February 10, 2009 Treasury Secretary Timothy Geithner unveiled the Obama administration’s plan to address the crisis in the financial sector. The strategy he outlined calls for the largest Federal intervention in banks and finance since the Great Depression, flooding as much as $2.5 trillion into the system. Given its size and scope — the bill’s lack of detail drew a widely negative response from analysts and economists.
Although he thinks the details are important, Simon Johnson, Professor of Economics at MIT, worries more that Geithner and the Obama administration won’t address a big underlying problem and be tough enough on the politically powerful banking lobby.
Johnson explains to Bill Moyers on the JOURNAL that the U.S. financial system reminds him more of the embattled emerging markets he encountered in his time with the International Monetary Fund than that of a developed nation. As such, Johnson believes that the U.S. financial system needs a “reboot,” breaking up the biggest banks, in some cases firing management and wiping out shareholder value. Johnson tells Bill Moyers that such a move wouldn’t be popular with the powerful banking lobby: “I think it’s quite straightforward, in technical or economic terms. At the same time I recognize it’s very hard politically.”Without drastic action, Johnson argues, taxpayers are merely subsidizing a wealthy powerful industry without forcing necessary systemic changes: “Taxpayer money is ensuring their bonuses. We’re making sure that banks survive. And eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money. And they will cash out. And we will be paying higher taxes, we and our children, will be paying higher taxes so those people could have those bonuses. That’s not fair. It’s not acceptable. It’s not even good economics.”