Of course, it's less of a surprise that Geithner and Summers believe in bank-centrism -- they're both creatures of it. Which is why it wasn't a shock when it was reported this weekend that Summers had received $5.2 million for advising a hedge fund last year, or that he received hundreds of thousands of dollars in speaking fees from some of the very banks -- including J.P. Morgan, Citigroup, and Goldman Sachs -- that have been on the receiving end of billions in taxpayers money. Billions that have come with very few strings attached -- and almost no transparency.
I am in no way suggesting there is anything corrupt about this or any quid pro quo involved. It's just that in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail banks is the logical thing to do.
So is arguing that the banking crisis is just a liquidity problem rather than an insolvency one, as Geithner continues to do (and if the stress tests come back declaring Citi solvent, it will be high time to start stress testing the stress testers).
In a bank-centric universe, it's also no surprise that "mark-to-market" accounting rules, in which banks have to calculate and report their assets based on what those assets are actually worth, instead of what they'd like them to be worth, are being abandoned. A good name for the reworked accounting standards would be mark-to-fantasy, because that's basically what balance sheets will be under these new rules. Of course, to a true believer in bank-centrism, the problem with mark-to-market is that it's not good for the banks. It's the accounting equivalent of Galileo's telescope.
Last week at the G-20 meeting, Gordon Brown proclaimed that "the old Washington consensus is over." But when it comes to attacking the financial crisis, the zombie Wall Street/Washington consensus that has everything in America orbiting around the banks is still the order of the day.
The longer bank-centrism is the dominant cosmology in the Obama administration -- and the longer it takes to switch to a plan that reflects a cosmology in which the American people are the center of the universe and are deemed too-big-to-fail -- the greater the risk that the economic crisis will be more prolonged than necessary. And the greater the suffering the crisis will continue to cause.
There is an enormous human cost to this bank-centric dogma. Unemployment, already at levels not seen since 1983, is skyrocketing. In many places in the country, it's approaching 20 percent (and in Detroit it's 22 percent).
Writing about the "grand book" that is the universe, Galileo declared that it "cannot be understood unless one first learns to comprehend the language and interpret the characters in which it is written... without these, one is wandering about in a dark labyrinth."
That's where we find ourselves today, wandering about in a dark financial labyrinth -- being led by good men blinded by an obsolete view of the world.
Tuesday, April 07, 2009
From today's Huffington Post: