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Posted by on Mar 24, 2009 in Economy, Politics | 25 comments

Geithner’s (Five-Year) Plan


I read the Washington Post’s article regarding the plan to increase the power of the government, through the Department of the Treasury, to regulate or control larger segments of the financial market including hedge funds and similar instruments. Here is the quote from the article:

“Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit”.

Several people on the right have accused the Obama Administration as having socialist tendencies and on some levels they are correct. However, it seems odd that no one has pointed out that this move is nothing short of a shift towards direct centralized governmental control of the financial private sector… in some corners, this would be called “Communism”.

A definition of Communism from – “a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self-perpetuating political party.” Wow, that sounds familiar, doesn’t it? We should be very careful that we don’t let fear drive policy to the point where we wake up and government is left with unbridled control of the financial markets.

The greed of a few, and the fears of many, may accomplish what 45 years of the Cold War was not able to achieve – transform private Capitalism into state Communism.

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Copyright 2009 The Moderate Voice
  • Uncular1

    Really Tony?

    “social activity is controlled by a totalitarian state”

    Hmmm…. could that be construed to mean controlling a woman’s right to choose? Who one can legally marry? So, by your logic we’ve been living in a Communist state no matter which party is in power.

    Thanks for the morning hackery.

  • shaun

    You have fundamentally and, I daresay, intentionally misrepresented the plan.

    This is not about control for its own sake but rather to mediate against collapses and otherwise shore up a foundation of the economy.

    And if this was an attempt at humor, then don’t quit your day job.

  • djshay

    The picture of Stalin really adds credibility to your work. The whole, “communist”, “socialist”, “facist”, name calling is so lame. Why weren’t these names bandied about when Bush spied on us illegally and promoted torture? Jeebus, people on the right need to get a grip on reality.

  • Jim_Satterfield

    Of course he misrepresented it, shaun. It’s the in the current job description of pretty much every Republican. and djshay beat me to it when it comes to pointing out the credibility of anyone who put that picture of Stalin in a post about Obama.

  • mikkel

    Um, no it’s not Communism. If they seized all means of production and then dictated supply and demand, that’s Communism.

    All this stuff about Communism/Socialism whatever fails to recognize the difference between the “economy” (production and labor) and the “financial system” (the allocation of credit). There have been capitalist societies with completely nationalized financial systems, ones with private financial systems that have extremely strict regulations and ones that have no regulations. Some of the countries that had nationalized financial systems had rather unregulated economic activity, while the US had a very unregulated financial system and highly regulated economic activity.

    People need to stop confusing the two.

    • CStanley

      That is a completely valid and important distinction, Mikkel, but what about the new request by Treasury to get authority to seize non-financial firms? I read Yves’ take on it and I realize he wasn’t using the term ‘Trojan horse’ in the same way that I’d have concerns about it, but how do we know where the slippery slope ends when even considering giving this kind of authority to a govt agency? Not to mention the fact that said agency appears to be in so far over its head already, and that it has failed to use regulatory authority it already has but now wants more authority.

      But in any case, doesn’t that blow the distinction you’re making out of the water, if we’re about to give the govt authority to also seize other corporations that banks?

      • mikkel

        No, my distinction still stands because it’s still the “financial system” that they are referring to. Specifically it’s what Nouriel Roubini termed the “shadow banking system” which is far larger than the official banking system. There is valid concern that the government couldn’t even seize some of the big banks (or obviously AIG) even if it wanted to, which is a big problem when any of the could easily destroy the global economy overnight if they failed.

        The primary concerns are like you and Yves point out. She points out all the legal implications; it’d be one thing if we were starting from scratch, but we’re not, and all the domestic and international law can’t just be rewritten in haste. I’ve been reading some stuff on other sites that is making me question the legal feasibility of nationalization, specifically the international aspects. I am more radical than many about what the government can do to capture failed institutions here, but most of the issues involve foreign laws and assets because the world has allowed these companies to become giant shell games. Still, even though those games are morally (and now financially bankrupt) we can’t just break international law.

        Even aside from that, I’ve read an increasingly persuasive case that the government does not have the talent to handle this. Again, that’s not to say that it would be impossible for a government to, just that at present we don’t.

        To me it is becoming increasingly clear that political reform must come before financial reform, and I’m a wee bit skeptical that will come anytime soon. As such I am moving to the position that we should just set up a parallel financial system that is starting over from scratch with new regulations and guarantees, and let the old one live or die based on its own merit.

  • jammer3

    I think a quick review of fifth grade civics would make you feel better. You may want to focus on the concepts of the separate branches of government and free elections – all the stuff that continues to prevent “unbridled control” and “totalitarian government.” Our country’s capitalist spirit and form of government can survive intact some extra financial industry oversight and regulation.

  • Silhouette

    Look here’s the irony.

    We don’t want communism so we have to curb malignant capitalism BECAUSE IT LEADS TO FORCED COMMUNISM.

    Obviously and apparent in exactly what we’re going through today. The pendulum must swing in the opposite direction to correct the PRE-EXISTING imbalance. The middle should eventually even out at responsible capitalism where strict regulations are in place to prevent malignant capitalism only, like monopolies (see BigOil), hostile takeovers (see Iraq), stock manipulations and so on. We need to look clearly at what forms of capitalism are malignant to a healthy economy and simply eliminate them from legality.

  • pacatrue

    True, CStanley, but of course the “non-financial” firms they are interested in are in fact financial firms by other names, such as insurance companies. Clearly the target there is places like AIG which are intimately part of the financial system even though they are not banks themselves. If the Secretary has no ability to be involved in those companies, then s/he can only handle small portions of the financial system. Clearly, what’s needed is some way to make that clear, so that AIG falls in but someone’s dry cleaning business is clearly out.

    My problem with the post is indeed the sort of name-calling bit. I’m very okay with saying that giving the government these sorts of powers is a very bad idea. We can all then debate whether it’s the right move or not. But adding that this is the transformation of our system to communism only fits directly into the conservative meme for decades now that those liberals are all really pinkoes.

  • CStanley

    To me it is becoming increasingly clear that political reform must come before financial reform, and I’m a wee bit skeptical that will come anytime soon.
    You can say that again. I’m 1000% with you on that.

    Yves is a she? I thought that was a male name?

    And I do get what you’re saying about the firms currently under consideration being financial institutions but not banks- but I’m still troubled by the breadth of the proposal when I look at the wording Geithner’s using, like here (from NYT, emphasis mine):

    Mr. Geithner added that while a “very well-designed system” built up after the savings and loan crisis of the 1980s had given the F.D.I.C. the ability to adopt with banking crises. “No comparable framework exists for a range of other institutions, including those that are associated with banks, that can pose broader risk to the stability of the system.”

    If this were just about the ‘shadow banking system’ then that would only be ‘those that are associated with banks’, not ‘a range of institutions including those that are associated with banks.’ The latter implies an even broader group of institutions, of which the insurers like AIG or the hedge funds are just subsets.

    • mikkel

      Yes. One of my primary complaints about the Bush Administration were the sweeping legal declarations that they could do pretty much anything to anyone. Even worse was that Congress affirmed a lot of those declarations.

      Now I am very upset that they did torture and illegally spy on people, and think they should be brought to justice, but I also am aware that our government officials have been doing that for decades (I think they should be brought to justice too). What made me despondent however, was the codification of that behavior into legalisms, because while I did not think that Bush was going to become Dictator, I was (and still am) very concerned that dismantling the legal checks would make that situation more likely in response to the next big crisis.

      Similarly, the economic crisis has generated these grand sweeping declarations of authority in similarly vague writing. Again, they do this not because their aim is to take over all this stuff, but because they don’t want to mess with any “hassles” so they make it as broad as can be. However, even though everyone knows what the aims are, so they would approve with a wink and nod, I do agree that it sets the stage for something bad down the line. That is the source of my apprehension to do things that would require massive legal authority, even if I agreed with the actions themselves.

      Yeah Yves is a male name, but this one isn’t.

  • CStanley

    Clearly, what’s needed is some way to make that clear,

    And I’m not endorsing this post at all because I think that kind of association is completely unhelpful to those who are trying to address serious concerns.

  • pacatrue

    I agree very much with you, CStanley. As the comments show, the conversation moved immediately to people yelling about who and what communism is and away from whether or not the Treasury Secretary’s plan is a good idea.

  • CStanley

    Well said, Mikkel. We should never cede liberties so capriciously, no matter how benign we think the cause.

  • elrod

    I thought the term in the Geithner proposal was “non-bank financial firms” and not “non-financial firms.” After all, “non-financial firms” could mean the dry cleaners down the street. But “non-bank financial firms” clearly means AIG, Lehman, etc. that don’t take deposits.

  • CStanley

    Elrod- I’ve seen journalists using that term but I don’t think there’s a written plan yet so who knows? I was pointing out the wording in Geitner’s testimony that sounds overly broad to me.

  • JSpencer

    Any post that begins with the intent of comparing the Obama administration with Joseph Stalin had better be able to make the case or it only succeeds in being sophomoric. I really have to wonder at the number of history challenged people these days who have advanced keyboard skills.

  • acspark

    It was my intention to write a post that got people to think about the implications of Obama’s policy. The picture of Stalin was placed there to provoke a response and to start a dialogue. I thought that was the point of writing…

  • AustinRoth

    So, Stalin was a bad example. What is a good one? Chavez? The basic rhetoric is undeniably the same – “if you do not conduct your business in the manner the Government wishes you to do so, we can and will seize control of your company for the good of the country.”

    Now, no name calling please. I am seriously putting forth the proposition that the two (Chavez’s actions and the authority now being proposed for the Treasury) are equivalent in a very real and fundamental way. So, someone please demonstrate how they are not.

  • Jim_Satterfield

    Nationalization of a healthy business is not the same thing as proposing that a business that is dead in the water should be taken over in an attempt to salvage something for the public that has already invested in attempting to rescue it.

    • AustinRoth

      OK Jim, you are being civil, so let’s talk. Chavez claims that the business he is taking over are not healthy, that they are stealing from the public, or otherwise hurting the country.

      And I didn’t see anything about this new authority being limited to ‘non-banking financial institutions’ that took government funds. Quite the opposite. I thought they made it clear they could intervene in ANY ‘non-banking financial institution’ they determine is ‘troubled’.

      That is what scares me. Generic, open-ended, undefined terms that can mean something different later than we think they mean now.

  • JSpencer

    I guess I’ve seen too many outlandish comparisons drawn lately, many of which seem thinly disguised efforts to demonize. Pardon me if I overreacted a bit.

  • CStanley

    I think the distinction that Jim makes is a valid one but I also think you’re right to point out this additional slippery slope, AR. There certainly has been enough of the populist rhetoric lately to justify some concern that the powers that we may grant to the Executive branch could result in interventions based on ‘fairness’ of compensation policies of companies, not on actual solvency concerns. I don’t think we’re there yet, so the Chavez analogy doesn’t hold right now. But do we want to legislate the framework under which that could easily happen in the future? That’s the sort of thing our framers sought to avoid- giving power to a few individuals which could be used, possibly with good intentions but disastrous results.

  • Jim_Satterfield

    Chavez is a loon. Cracked. I have never heard him refer to the companies he is trying to nationalize as not being healthy, more of a set of accusations of them being crooks as you noted. Pot, meet kettle. Not the same thing at all. The reason that authority is being sought over non-banking financial institutions in general when they are in deep trouble is illustrated nicely by the Lehman debacle and AIG. Look at what happened when Lehman was allowed to fail. Realize that the same thing could happen because of the hybrid nature of these non-bank financial institutions if a major one of them failed.

    In foreign relations there once was the domino theory which was rightly criticized. In our modern financial system we have allowed a monstrosity to develop that is so intertwined we have the Jenga theory. Pull out one of the rotting timbers and you stand a pretty good chance of bringing down the whole tower because of how they all seem to depend on each other.

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