No wonder Barack Obama looked so haggard and careworn in his Monday night press conference. He knew, as the rest of us did not, that when the world tuned in the next day to hear his Treasury secretary’s long-awaited plan for the next round of bank bailouts, it would instead get Professor Geithner’s introductory lecture on the roots of the Great Panic of ’09. It’s clear now that the Obama administration doesn’t know what to do next.
Optimists may choose to conclude that these signs of continuing disagreement at the White House point to the possibility of better and tighter controls on the future use of public funds and guarantees. I’m a little surprised to see Paul Krugman among their ranks. All wishfulness aside, it seems likely that the administration is caught between its ideological commitment to avoid at all cost the nationalizing of the banks and the increasing Congressional hostility toward the idea of continuing to throw good money after bad. Federal Reserve chairman Ben Bernanke, appearing at a House hearing yesterday, was asked point-blank whether the Fed was solvent. His reply (which appears in the NBC video I’ve embedded below): “We have a very clear knowledge of our liabilities and assets, and they’re well-matched. We don’t have any kind of Ponzi scheme or other such thing going on.” (Emphasis added.) I’m guessing that no previous Fed chairman has felt moved to assure Congress that the U.S. central bank is not one giant con.
Recommended: Congressional Quarterly’s transcript of the Geithner speech; Martin Wolf, “Why Obama’s new TARP will fail to rescue the banks” (must-read); CNBC, “Five reasons the markets don’t like the bank bailout”; Wall Street Journal, “Market pans bank rescue plan”.
Video: Bernanke tells House hearing that the Fed’s not a Ponzi scheme (around the 2:50 mark)