Remember in December, after Merrill had agreed to be bought by B of A, suddenly Merrill’s balance sheet went south and the Treasury had to come in with five billion of your dollars to bail the deal out?
Well, unless I misread this Financial Times story, the balance sheet went south because there was a B of A exec working at Merrill headquarters whose job it was to bully the Merrill executives (who would eventually be reporting to him) to agree to take a bunch of writedowns. It’s not that B of A got an unpleasant surprise; B of A knew what it was buying all along and figured out a way to finagle a lower price.
This happened, of course, after we knew that the country was headed for the worst financial crisis since 1929. Same with AIG’s decision to pay all those retention performance-incentive bonuses to people who weren’t being retained and whose payouts weren’t based at all on their performance, but had been guaranteed to be no lower than their payouts the year before.
The decision to put Tim Geithner at the Fed was a decision to try to cooperate with the financial-services industry in working out the problems; Geithner was their guy, which is why his tax problems were survivable when Daschle’s weren’t. I’m not saying that was a bad strategy. But now the Wall Street folks have made it clear that they’re in it for whatever loot they can carry away, and it’s time, in the words of Michael Corleone, to get rid of the peacetime consigliere and hire a wartime consigliere.
Now it’s possible that the leaked plan to bail out the banks is worse than the actual plan. But so far no one seems to have a good word to say for it. Update Wrong! Brad DeLong likes it. That has weight with me. Now we’ll have to see what the markets think. That was Geithner’s #1 assignment. If he blew it, then he has to go.
There’s talk that Obama can’t afford to look as if he’s floundering by dumping his Treasury secretary. I don’t think that’s right. He ought to say something like:
Look, Tim Geithner is a great guy, but it turned out he wasn’t the guy for that job. When I picked him, I just didn’t guess how cynical and greedy the barons of Wall Street really are. I thought that if we had a Treasury Secretary who knew that world and was trusted by that world he could get the players there to do the right thing for the country rather than just grabbing for every dollar in sight. My bad.
I make mistakes. I try not to be stubborn about those mistakes. Tim has agreed to step down, and I’m delighted to say that we’ve found the perfect replacement ….
Now all we need is a name to put in that blank. Jon Corzine? Yes, he used to run Goldman. But he’s been making some tough-sounding noises recently: about the AIG bonuses, for example, and about the Lehman executives who (he says) cost New Jersey’s pension funds a bundle.
A poacher-turned-gamekeeper has lots of advantages: Corzine as SecTreas would be very hard for the banks to bullsh*t. He’d be able to tell whether there’s really dynamite in all those suicide-bomber vests the bankers are wearing. And he might well know how to make an example of one of them, pour encourager les autres. Think about Joe Kennedy at the SEC.