Wednesday, March 18, 2009

A Modest Proposal: Jim Baker to Treasury

If Paul Volcker can serve as an economic advisor at the ripe old age of 81, then Jim Baker should be more than spry enough to reprise his role as Treasury Secretary for a year. At this point, it only seems like a matter of time before Tim Geithner gets canned/decides to spend more time with his family. Geithner's stunning inability or unwillingness to use the government's leverage over AIG to prevent them from paying out absurd bonuses is the final straw. The larger issue is his failure to come up with a bank rescue plan that doesn't amount to a giveaway to the bankers. Apparently, nationalization is too unthinkable or scary (picking on Geithner is like hitting a ball off a tee, but Harold Meyerson hits one out of the park with his latest column).

To his credit, Baker recognizes that we face a crisis of solvency, not of liquidity. He has called for FDIC-style receivership of insolvent banks, so that they can be closed and sold back to private investors. This would admitedly be a difficult process, fraught with risk, but it is much, much better than the alternative of creating zombie banks. If anyone can pull this off well, it is Baker; throughout his career he has demonstrated a knack for simply getting things done. He is a doer. Most appealingly, he is a Republican - and one with close ties to Reagan to boot. If he were to be in charge of temporarily nationalizing the banks, it would insulate Obama from any political heat Republicans might gin up about him being a "socialist" for taking over the banks. This would be a political and policy coup. What are the odds of it actually happening?

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