Obama Administration Careening Towards Disaster (and Taking the Country With It)

By Dave Lindorff

Six months after the failed Bush administration effort to "rescue"
the US financial system, and after two months of failed efforts by his
own new administration, at an expense to the American public of several
trillion dollars and counting, the Obama administration is announcing
plans to blow another $1 trillion in a massive taxpayer giveaway to
investors who will be subsidized in an effort to get them to buy the
so-called toxic assets on the books of the nation's biggest banks.

The problem with this plan is that its goal--getting these zombie banks to start lending again--is not going to work.

It doesn't matter how good the balance sheets of the banks are. Good
companies, and even individuals and families with good credit, are
simply not borrowing. As I wrote last month in the magazine Treasury and Risk,
the problem isn't that banks are too weak to lend (though the zombie
banks certainly are), it's that the strong banks don't want to throw
money at bad borrowers.

It is the nature of economic downturns like this current one that
companies and ordinary families don't borrow, but rather cut back on
their spending and try to reduce their debt, the better to ride out the
hard times. It is only the companies that are in trouble, like General
Motors, Ford and Chrysler, that are looking for loans, and no bank is
going to want to lend to them regardless of how much money the
government pumps into it. (And if the public decides that it is in the
national interest to prop up such companies, it is much more effective
to have the government loan them the money directly, rather than try to
get banks to lend it to them at much higher interest.)

What this means is that all the Obama administration, the US
Treasury and the Federal Reserve are doing by buying the toxic assets
off the books of banks like Citigroup, Bank America or Wells Fargo is
giving a taxpayer handout to those banks' investors and
bondholders--the very people who enabled those companies to invest in
the corrupt credit default swaps and other shady derivatives in the
first place.

What should happen? Citibank, Bank of America, Goldman Sachs, and
the other financial institutions that made bad bets on these structured
financial instruments, should be allowed to fail, taking with them the
investors who played this dirty game, and the managers who decided to
gamble instead of run conservative banking operations.

The government would protect the assets of depositors in those
failed banks, which would be sold to healthier, better run banks,
making those banks much stronger and better capitalized in the
process--and thus ready to start lending as needed. This is standard
operating procedure for the Federal Deposit Insurance Corp.

Note that this process would mean no crisis in the economy, since
the ability to access credit would not be crimped in the least by the
failure of some of the country's larger banks. It would, in fact,
probably be enhanced.

The toxic assets would be eliminated through the bankruptcies, and
the government--and taxpayers--would be $1 trillion less in the red.

Why isn't the Obama administration doing this? Because Obama has put
his trust in the advice of men--Treasury Secretary Tim Geithner, Chief
Economic Advisor Larry Summers, and, informally, former Clinton
Treasurer Robert Rubin, all linked to the investment bank Goldman
Sachs, which was also the corporate home of Bush Treasury Secretary
Henry Paulson. The same Goldman Sachs which was given $10 billion in
Troubled Assets Relief Program funds directly, and which then snagged
another $13 billion in TARP funds in secret, which was laundered
through the now-government-owned insurance company AIG.

It should be clear at this point that the Goldman cabal burrowed
deep inside the Washington apparatus is working not to rescue the US
economy, but rather to ensure the survival and enrichment of the big
banking establishment, and of course Goldman Sachs.

What we are witnessing in the policies of the Obama administration
is not the creative experimentation of a modern-day Franklin Roosevelt,
but rather the greatest heist in the history of mankind, as trillions
of dollars in public funds are shifted from taxpayers' pockets into the
hands of the very banks and bankers and bank investors who brought us
this financial debacle.

Instead of decrying the bonus payments to AIG executives, the
American public should be demanding the indictment of Paulson, Summers,
Geithner and Co. for IGL: Incomprehensibly Grand Larceny.

Instead of trying to rescue the nation's giant banks, we should be demanding that they be shattered into little harmless pieces.

Come to think of it, maybe it's time for a run on the banks--not
because your money is not safe at Chase or Citibank or B of A, but
because these institutions need to be killed off for the good of the
nation.

If you have an account at any national bank, go there tomorrow and
take it out. Transfer it to a local bank in your community. You'll get
better service, your money will still be just as safe, and you won't be
propping up institutions that have been stealing the country blind.
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DAVE LINDORFF is a Philadelphia-based journalist and columnist. His
latest book is "The Case for Impeachment" (St. Martin's Press, 2006 and
now available in paperback from www.thiscantbehappening.net). His work is available at www.thiscantbehappening.net