Arianna Huffington: Financial Sleaze Threatens Health Care Reform

Finally, someone has noticed the obvious connection between the failure of health care reform and sleazy financial bailouts that keep paying multi-million-dollar bonuses to Wall Street executives... Her name is Arianna Huffington:

Because of the wonderful quality of fungibility, your tax dollars are helping to pay obscene bonuses to executives of banks that would otherwise have gone belly up. Here are some lowlights: Goldman Sachs made $2.3 billion in 2008, but gave out $4.8 billion in bonuses; they also received $10 billion in TARP funds and more than $12 billion of taxpayer money as a counterparty to AIG. JPMorgan Chase made $5.6 billion, but gave out $8.69 in bonuses; they received $25 billion in taxpayer bailout money. Citigroup and Merrill Lynch lost $54 billion, but gave out $9 billion in bonuses. It must have helped that taxpayers wrote them a check for $55 billion. As the report dryly puts it, "there is no clear rhyme or reason to how the banks compensate or reward their employees."

"Everybody understands," Geithner said on This Week, "that we cannot have our financial system go back to the practices that brought this economy to the brink of collapse." It's true, we all understand it. The problem is, the system has already gone back. Risky derivatives are traded again, bonuses disconnected from performance are being handed out again, bank lobbyists are spending tens of millions to undermine necessary regulatory reforms again. The only real long-term solution is for the government to ensure that there are no financial institutions too big to fail anymore, so that if they continue to act irresponsibly, then they are just allowed to fail. That's capitalism, remember? The creative-destruction consequences of a free-enterprise system that all these bonus-loving bankers love to extol.

If we're really going to protect taxpayers and create a more stable system, the most important reform is to never again be held hostage by institutions that pose a systemic risk and therefore have the power to tell us: "If you don't give us the money, we're going to blow up the whole system." Actually, what we have now is worse than a hostage system because in a classic hostage setup, after you pay the ransom you get the hostage back. We've paid more than a king's ransom, but have not taken the hostage -- our financial system -- back from the banks.

The administration is considering, for example, splitting Fannie Mae and Freddie Mac and putting their troubled assets in a new government-backed entity, but nothing is being done about the much more powerful, too-big-to-fail banks. Indeed, the only reason banks like Citigroup could announce a profit last quarter is because all the toxic garbage on their balance sheets is still being treated as though magically it will one day turn into gold.

This has about as much chance of happening as Larry Summers' hope that the banks will, as he put it, "join us in working to create the right kind of regulatory system." But why would they voluntarily "join us" to mess up the good thing they have going? After all, if their toxic assets -- whether commercial real estate or credit cards -- continue to go down, guess who is going to pay?

As Geithner said to Stephanopoulos, "We can do this, it just requires the will to act." But the will to act is different than the will to use reformist rhetoric or the will to launch a tirade urging reform, as Geithner did last Friday.

The window for reform is closing. After the August recess, all energy in Washington will be devoted to health care. I hope we get a great plan. But even if we do, with a financial system in which we're still being held hostage by the banks, another collapse is inevitable -- taking everything, including a great health care plan, down with it.