Lots of smart folks are praising the President’s speech, and I liked it, too. But with all the enthusiastic talk about the President “explaining” things, the critical things about Treasury policies remain unexplained.
Here is the key passage:
There have been some who don’t dispute that we need to shore up the banking system, but suggest that we have been too timid in how we go about it. They say that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure to do so is yet another example of Washington coddling Wall Street. So let me be clear — the reason we have not taken this step has nothing to do with any ideological or political judgment we’ve made about government involvement in banks, and it’s certainly not because of any concern we have for the management and shareholders whose actions have helped cause this mess.
Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm.
Now, the questions:
1) What do you mean by “preemptive government actions”?
2) You previously dismissed the Swedish model by saying that they didn’t have enough banks, but really, in the United States, we are talking about a few huge banks. So why the misleading talk beforehand? What exactly is wrong with what they did?
3) Why do you believe that keeping current management, and not liquidating the interests of shareholders and investors will “cost taxpayers more in the end”? Where does that belief come from? Does it have any evidence behind it? Or is it a faith-based initiative?
4) What really do you mean by confidence? Whose confidence? Certainly it would undermine the confidence of those on Wall Street? But doesn’t that prove too much?
5) You say that your decision is not based on any ideological judgment about government involvement in banks; but isn’t the “belief” about “preemptive takeovers” exactly that sort of ideological judgment?
We’re waiting for some answers…