The twin towers are no more. And gone along with them are opportunities for Phillipe Petit to walk a carefully tensed rope between them -- a sight really hard to watch. Instead we have (shiver!) Barack Obama taking a no less perilous walk on a rope stretched between hope and reality, between banks and government, between economic adviser and economic adviser. For the time being, this tightrope walker understands that maintaining hope and a little obfuscation can affect reality positively. Well, maybe.
On the other hand, misplaced hope can land us at the bottom of the abyss very fast. Here's how Steve Coll describes the tense situation facing both the administration and America's banks.
I heard a senior Administration official remark that seventy-five per cent of the country’s banks are probably upside down. Since, as with home mortgages, this is a condition of unrealized loss whose implications (i.e. bankruptcy) can be artfully postponed in many instances, there is an understandable desire to see if the economic downturn can be somehow finessed—or if the banks can simply be talked back into health. The viability of particular banks will be determined not only by the mathematical facts of the value of their holdings and debts, but also by the less easily measured ebb and flow of national confidence. Geithner et al must simultaneously produce a reliable accounting of bank balance sheets while simultaneously doing all within their honest powers to preserve and promote confidence in the banking system and the economy. This is a prescription for self-contradiction and we’ve been getting plenty of it.
So what's the solution? At least, what could get us safely off the tightrope? Temporary receivership?
... Geithner, Bernanke, and the President seem to
have organized themselves as a determined minority in resistance to the
gathering view among mainstream economists, even Alan Greenspan, that
the best solution to the bank problem, at this point, is, in fact,
temporary receivership—on the model of the Resolution Trust Corporation
that cleaned up the savings-and-loans industry in the early
nineteen-nineties, or the more routine receivership processes of the
Federal Deposit Insurance Corporation.
The reasons for the apparent struggle within the administration is described by Coll.
As an outsider to Wall Street and corporate life, Obama presumably
does not suffer from what I recently heard Paul Krugman refer to as
“cognitive regulatory dysfunction,” which is the tendency of Washington
regulators with Wall Street backgrounds and connections to overestimate
the value of Wall Street expertise. Obama did, however, take a great
deal of Wall Street money while running for President. He has
surrounded himself with both Wall Street mandarins and others (Gene
Sperling, Peter Orszag, and Jason Furman) whose careers and thinking
are free of such cant. I hope this is the deepest cause of the
Kremlin-like signals: A hidden struggle within his councils between
competing perspectives about the proper relationship between Washington
and Wall Street in the midst of this crisis.
There is an understandable anger brewing in the country against Wall
Street and the big commercial banks. During his speech Tuesday night,
Obama tried to position himself ahead of this anger—his political
advisers certainly recognize that if he doesn’t occupy this cultural
ground, the Republican Party will try to do so. Perhaps, in time, the
President will trust his instincts and take his chances with his civil
service, supplemented by the out-of-work bankers it can retain. In a
situation with no great choices, this seems the better one—and much
truer to the President’s campaign.