andrewmcintyre.ca

March 6, 2009

Any keen observer of the deepening financial morass we’re faced with, and there’s many armchair pundits – myself included,  recognizes that the problem began with sub-prime mortgages and the securities they were packaged in to. The investment banks  that bought and sold these highly speculative “investments,” their insurers who underwrote them *ahem* A.I.G. *ahem* and the credit rating agencies that provided the toxic waste with AAA ratings can all take their healthy share of the blame for how we got to where we are.

The financial media also deserve a lion’s  share of the blame, and Jon Stewart’s evisceration of CNBC (US link / Canadian link) this week was truly “Must See T.V.”  As an aside, there’s also been some excellent commentary on what journalists can learn from this comedian, who many seem to think is doing a better job reporting than most reporters. [link via Jay Rosen]

But there’s a bigger problem: how US political leaders are structuring the bailout.

To contextualize how the bailouts began, the philosophies guiding the decisions and the characters and personalities behind the scenes that presided over the both the largest financial meltdown in history and, at that time, the largest (failed) financial bailout I highly recommend PBS Fronline’s indispensable look Inside the Meldown, an hour long documentary that aired several weeks ago.

So where does this all leave us?

Tim Geithner, Obama’s Treasury Secretary and Federal Reserve Chairman Ben Bernanke are pursuing a strategy of throwing good money after bad buying these “troubled assets” and propping up the “zombie” financial institutions one bailout failure at a time.

NYT Columnist, and 2008 Nobel Prize winning economist, Paul Krugman points out today:

Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.

This is the same A.I.G. that, unable to honor its promises to pay off other financial institutions when bonds default, has already received $150 billion in aid and just got a commitment for $30 billion more.

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

In other words, US political leaders, including Obama himself, better remove their heads from their asses immediately lest we all fall victim to Obama’s own dire worst case scenario: “an economy that sputters along for not months or years, but perhaps a decade.”

-@andrewmcintyre