Truthout, April 13, 2009
This is a rude question to many people, which is why it is so important that it be asked. The Obama administration is moving forward with a massive bailout program to rid the banks of their bad assets. The plan could involve as much as $1 trillion of the taxpayers’ money.
Many of us have pointed out that the plan can be easily gamed. It is likely to lead to a situation in which investors overpay for these assets because most of the downside risk will rest with the taxpayers. If investors subsequently lose money when they resell the assets, the taxpayers will eat most of the loss. It is also possible that, even with the huge subsidies implicit in this plan, the banks will still need more help 6 months or a year down the road.
The prospect of taxpayers losing hundreds of billions on a bank bailout which doesn’t even fix the banks is not very inspiring. In fact, it is a complete disaster. Even in Washington, $200 billion is real money. This would be enough to pay for almost 70 million kid-years of SCHIP. If the government loses this much money on a failed bank bailout effort, it would be a true disaster.
This is the reason for asking if anyone will get fired for designing a bad plan. Most of us have jobs in which we are expected to perform. If a retail clerk keeps giving the wrong change, he gets fired. If a custodian can’t clean the toilet properly he gets fired. If a construction worker can’t lay the bricks evenly, she gets fired. That is the way it works where most people live.
Unfortunately, that is not the way it works on Wall Street. The vast majority of the highly paid executives who could not see an $8 trillion housing bubble still have their jobs. These people committed an enormous, and easily preventable, mistake that destroyed several major banks, and would have destroyed most of the others if the government did not rush in with taxpayer dollars. (Incidentally, their incompetence also wrecked the economy.)
However, the failure to see the housing bubble caused relatively few senior people to lose their jobs. Most of them successfully used the “who could have known” defense. They argued that it was all so complex that they could not be blamed just because they didn’t see the biggest financial bubble in the history of the world. While a custodian or dishwasher could never get away with such a pathetic excuse, this sort of nonsense was sufficient to keep the Wall Street millionaires and billionaires in their jobs.
This brings us to the people who designed the Obama administration’s bailout plan. The question is: if this plan ends up being a disaster, will its designers be held responsible in some way, presumably by losing their jobs? In polite Washington circles, this is an extremely rude question, because polite Washingtonians think that the government should follow Wall Street rules, at least for those in top positions.
The idea that anyone would be fired just because their policies led to disaster is offensive to the Washington establishment. In these elite circles bad outcomes are just bad luck, no one is ever held responsible for giving bad advice.
However, President Obama ran on a platform of change. This would be a good place to start. When his top economic officials design bad policies, it is reasonable to expect that they would be held accountable. President Obama should be holding his staff to Main Street standards, where workers are expected to perform for their salaries.
It is bad enough that the major banks tolerate ineptitude in high places, especially when the whole country gets stuck picking up the tab. However, we cannot afford to also have Wall Street standards applied in the top echelon of government. If these people cannot design effective policies they must be sent packing. President Obama must insist on accountability from his top advisors. If their policies do not work, then they must face consequences.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.