I tend to agree with this, and I'd go even further. I'd like to think I'm a fairly smart guy, and I have a good education, though I am neither an economist nor a finance guy. I got a 97% in my Econ 1A class back in college, so here goes. From what I understand, there are few options for Obama to explore, and all of them are bad. He could do another round of TARP, which probably wouldn't work, would require taxpayers to take another hit, and which would probably be dead on arrival with the public, which has steadily been becoming more anticorporate over the past few months. I know I have.
Obama could do something along the lines of what Paul Krugman wants to do: nationalize the worst banks, wipe out the shareholders, strip out the bad assets, sell off the banks and create an aggregator bank that will handle the toxic assets. This makes sense to me, but I see two problems with it: one, it is illegal and two, even talking about this would send bank stocks even lower. Maybe Obama's considering this, but I know my history: Harry Truman tried to nationalize coal plants during the Korean War, and it got struck down in the courts. If government seizing private business was illegal then, it's probably illegal now. I guess Obama could eliminate all doubt and ask Congress for a law allowing him to nationalize, but the very act of asking would be an indication that he's considering it, which would crash bank stocks as people would be worried they'd lose their money. Or maybe he could roll the dice and hope that the Roberts Court is more left-leaning than the New Deal Court. Err...yeah, that seems likely. And he could just do it on the notion that he would be able to administer a coup de grace before the judicial system could react, but after eight years of a president who played by his own rules I am not enthusiastic about the prospect of more of the same.
This is not to say that nationalization is the wrong strategy--indeed, it's probably the least bad one. It's clear that there are many thorny issues to iron out, and that Obama's team is being cautious because they're only likely to have one chance to do things right, and whatever it is, it's going to be costly and chancy. I also don't think it's a coincidence that the people, like Megan McArdle and Will Wilkinson (and most Republicans), who are making the "He's not doing anything!!!!1!!" argument, are more likely to either have not backed Obama in the first place of to have done so reluctantly, because they already have a negative view of him and don't think he knows what he's talking about. Strangely enough, I'm beginning to think that the Republicans might inadvertently have had a point about banking during the stimulus debate. Tax cuts for the purpose of stimulus are not very useful because people tend to save or pay down debt with them, especially with one-time tax cuts. In most cases this is why tax cuts aren't useful to grow the economy, but at this moment I think that this predictable feature makes them more useful than stimulus spending since money spent or used to pay down debt would go to the banks that need it. What's more, it's not a giveaway to the banks and it doesn't subsidize bad choices, as people who lived prudently will just get some more money to spend, which helps the economy. I wonder whether Obama is going to wait to see if his tax cuts helped the banking system, and then take action. Now, the Republicans just mindlessly support tax cuts no matter the conditions, based on a half-baked scheme of supply-side economics that has never been as effective at creating growth than traditional economics (aside from creating a growth in millionaires and billionaires at our expense). Tax cuts, contra the GOP, are not the solution to every economic problem. I'm beginning to wonder whether they might not have helped with this one.
