Some Questions About Your Speech, Mr. President

For all of the President’s explaining, the key questions about Treasury policies remain unanswered.

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…

Author: Jonathan Zasloff

Jonathan Zasloff teaches Torts, Land Use, Environmental Law, Comparative Urban Planning Law, Legal History, and Public Policy Clinic - Land Use, the Environment and Local Government. He grew up and still lives in the San Fernando Valley, about which he remains immensely proud (to the mystification of his friends and colleagues). After graduating from Yale Law School, and while clerking for a federal appeals court judge in Boston, he decided to return to Los Angeles shortly after the January 1994 Northridge earthquake, reasoning that he would gladly risk tremors in order to avoid the average New England wind chill temperature of negative 55 degrees. Professor Zasloff has a keen interest in world politics; he holds a PhD in the history of American foreign policy from Harvard and an M.Phil. in International Relations from Cambridge University. Much of his recent work concerns the influence of lawyers and legalism in US external relations, and has published articles on these subjects in the New York University Law Review and the Yale Law Journal. More generally, his recent interests focus on the response of public institutions to social problems, and the role of ideology in framing policy responses. Professor Zasloff has long been active in state and local politics and policy. He recently co-authored an article discussing the relationship of Proposition 13 (California's landmark tax limitation initiative) and school finance reform, and served for several years as a senior policy advisor to the Speaker of California Assembly. His practice background reflects these interests: for two years, he represented welfare recipients attempting to obtain child care benefits and microbusinesses in low income areas. He then practiced for two more years at one of Los Angeles' leading public interest environmental and land use firms, challenging poorly planned development and working to expand the network of the city's urban park system. He currently serves as a member of the boards of the Santa Monica Mountains Conservancy (a state agency charged with purchasing and protecting open space), the Los Angeles Center for Law and Justice (the leading legal service firm for low-income clients in east Los Angeles), and Friends of Israel's Environment. Professor Zasloff's other major activity consists in explaining the Triangle Offense to his very patient wife, Kathy.