http://voices.washingtonpost.com/postpartisan/2009/02/obama_on_nationalizing_banks_a.html#moreWhen it came to fixing the banks, Obama acknowledged that “working through all those bad debts is going to be really tough.” Asked about a range of choices, from Japan’s go-slow approach to Sweden’s temporary government takeover of insolvent banks, he said:
"As you pointed out, sort of along the spectrum there are two ways of handling this. There’s the Japan model -- as I said, they sort of papered things over, never really bit the bullet, took their medicine, and so you never got credit flowing the way it should have and the bad assets in their system just corroded the economy for a long period of time.
"Sweden, in contrast, took over their banks and took out the bad assets and then resold the good banks, the fixed banks, to private hands. And they were up and running pretty soon. And as I said when I was asked about this the other day, you can make a good argument for the Swedish model, except for this fact: They only had a handful of banks. We’ve got thousands of banks. The scale, the magnitude of what we’re dealing with is much bigger. We’ve got global financial markets that are reacting in all sorts of unpredictable ways. And so what we have to do is to we have to pull the Band-Aid off so we don’t duplicate what happened in Japan. But we’ve also got to make sure that in pulling the Band-Aid off we don’t just start doing so much damage that things end up getting much, much worse. Finding that sweet spot is what we’ve been working on for the last several weeks and what Tim Geithner is going to continue to be working on over the next weeks, months, probably through the end of this year."
When pressed on whether he was ruling out the Swedish approach, he declined to do so:
"My absolute goal is to make sure that our financial system is set and that we get credit flowing again, that homeowners, small businesses and large businesses will get -- invest and create jobs and get this economy going again. I’m going to be very practical in terms of how to approach it. What we want to do is to make sure that we get this right on the front end. What Tim Geithner did was to provide a framework. He is presenting then a timeline of how this is going to roll out over the next several months: When do we start applying these stress tests to the banks; opening up their books; making sure that everybody knows for sure exactly what’s going on in there; structuring plans to attract private capital to help deal with some of these weaker institutions. Some of the smaller institutions that don’t pose systemic risks, if it turns out that they’re in really, really bad shape, then we may have to reevaluate how we approach some of those institutions.
"He’s also working the Federal Reserve Bank and the FDIC to open up lines of credit that immediately provide some relief to small businesses and consumers. There are a whole bunch of credit markets, like student loans or credit cards, that are locked up right now, but actually the underlying assets in these securitized markets are not that bad, so we may just have to use a variety of different tools to give private investors some confidence on that front.
"But here’s the bottom line: We will do what works. It is going to take time to lay out every aspect of this plan and there are going to be certain aspects of any plan that was designed which will require reevaluation and then have some experimentation -- if that doesn’t work then you do something else. What I’m confident about is that the basic framework that we have put forward is the right one, and that it balances a whole host of issues, including, by the way, the issue of making sure the taxpayers aren’t just carrying the whole freight on this thing, and that we’re sharing -- that institutions on Wall Street are sharing the burden of cleaning up this mess.
"We want to help because -- not because I’m particularly happy about how Wall Street has been running its businesses, but because if we don’t fix the banking system and the credit markets, then businesses can’t make payroll and we continue to see pain among ordinary Americans. On the other hand, I think that folks on Wall Street have to understand that these burdens have to be shared, and so restrictions on executive compensation, transparency, making sure that shareholders are more effectively involved, all those things we’re taking into account. And by the way, the market is not always going to like some of those decisions, because ideally what they’d like to do, they’d like to continue business as usual and not pay a price for a whole bunch of really big mistakes that were made."
We pressed him again on his meaning, and he said:
"I will not allow our financial system to collapse. And we are going to do whatever is required to get credit flowing again so that companies and consumers can do their business and we can get this economy back on track."
He also spoke straightforwardly about what he wished had not been cut out of the stimulus bill in the compromise between the House and the Senate:
"I do think that we probably could have done more on the education innovation front. I think we could have done more with some of the health-care reforms that would lower costs. I think that if you ask governors, Republican and Democrat, around the country, about their budgets, they would argue that cuts in help to the states is going to put them in a very bad bind, particularly if the economy does not turn around fairly soon. So those are all issues where again, I might have designed it a little bit differently, but ultimately this is a framework that is going to create between 3 and 4 million jobs. And that was my bottom line."
By E.J. Dionne | February 15, 2009; 4:34 PM ET | Category: Dionne
Previous: They Said It |