Meyerson: Simon Johnson is Right

Harold Meyerson certainly seems to agree with Simon Johnson's argument that the financial sector has become both too large economically and too powerful politically. In his last column, Meyerson essentially paraphrases Johnson's recommendations for dealing with this crisis. From the Washington Post:

The Democrat in the White House and the Democrats on the Hill are committed to legislation that regulates our dysfunctional wards in the banking industry, but regulations by themselves won't solve the problem of the banks being too big to fail -- and so big that they dominate campaign finance and, with it, much of the business of lawmaking. We need to amend our antitrust laws so we can scale down banks to the point that they no longer imperil our economic and political systems. As things stand now, it's we who are serving their needs, not they who are serving ours. It's time to turn that around.

While many in the media have been quick to dismiss Johnson as a radical, it is certainly encouraging to see his ideas gain some currency among more mainstream voices. Because if we do not build a consensus about checking the outsized influence of Wall Street, we will only set ourselves up for an even bigger crisis in the future, assuming we make it through this one over the next year or two.

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?

Welch: Ignore Everything I've Ever Said (Except For This)

Remember maximizing shareholder value? Remember beating quarterly earnings expectations being the be-all-and-end-all of a CEO's job? Well forget it - at least according to Jack Welch, the deified former GE CEO credited with ushering in the shareholder value gospel. From the FT:

Jack Welch, who is regarded as father of the "shareholder value" movement, has said the obsession with short-term profits and share price gains that has dominated the corporate world for over 20 years was "a dumb idea"....

"On the face of it, shareholder value is the dumbest idea in the world," he said. "Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products."

Now he tells us. No doubt Welch feels chagrined about the sorry state in which he left GE. While Welch managed to leave near the top, the accounting gimmicks he regularly employed to beat quarterly earnings expectations - particularly with the opaque GE Capital - have shredded investor confidence in GE's financial statements today. Oops.

It's worth noting that not everyone has bought into the shareholder value gospel. In the Washington Post, Harold Meyerson calls attention to the stakeholder model in Germany, where workers have meaningful representation on company boards, and long-term goals are prioritized over short-term ones, since German companies rely on retained earnings and banks rather than the markets for funding. It might be a model worth copying.