It's bad enough that Treasury Secretary Tim Geithner's performances in front of the media and Congress have been reviewed like a Sylvester Stallone movie without Rocky or Rambo in the title. Now Geithner's got the former Prime Minister of Australia, Paul Keating, ripping into his performance during Asia's economic meltdown in the 1990s - the performance that was presented to all of us as Geithner's "Rocky" moment.
How big are these developments? Think about it. Would you have gone to a Sylvester Stallone movie if Rocky and Rambo were somehow erased from your memory (yeah, I didn't go either, even with Rocky, but play along here).
The American Prospect's Robert Kuttner is even suggesting that we may have been sold a bill of goods. Helping to erase Geithner's "Rocky moment" is the fact that people like Kuttner are starting to look at Geithner's mentors, who (with the exception of Paul Volcker) are now in the financial dog house, and the fact that Geithner was head of the Federal Reserve's New York district office when the market meltdown began. In a few words, Geithner is slowly projecting like a bad Sylvester Stallone movie.
This is important because President Obama came into office with a distinct mission: calm the markets and set the stage for stability and growth down the road. Geithner's performances and his mentors are not helping him now. And it's getting worse.
Nakedcapitalism.com is pointing out that the bailout of AIG may simply be a way of funneling money into other market players, here and abroad. If we want to put this in a negative light, AIG is simply a front company - used as a clearing house for shoveling money into financial institutions who bought the toxic garbage (subprimes, ARMs, etc.) produced by Wall Street. Here's a list of companies, compiled by the Wall Street Journal, who have been paid off through AIG:
Royal Bank of Scotland
Bank of America
Lloyds Banking Group
The fact that this is a "Who's Who" list of global financial players is not as important as this: the bailout of America's financial institutions is slowly being exposed for being little more than a transfer of taxpayer money to the "Big and the Stupid" (sounds like a Stallone movie already) who made bad bets on bad products with money they didn't have. And Geithner was there, watching it happen.
It now appears that we're shoveling money into these global financial firms because, if we don't, the world will blame us for the financial disaster we're confronting because of how we exposed them to our toxic garbage. This is important because it suggests that the world is telling us that if we don't help rectify the situation with their banks they just might quit playing ball with us financially. This, in turn, would force some real ugliness on the American dollar, and cause political panic as the dollar collapses around the world.
In a few words, we're doing this both to save our own skin, and because we want to maintain global political stability (trade partners that become trade competitors is usually a prelude to economic nationalism).
During the Cold War we paid for the defense of the West, and were able to convince the rest of the world to hold dollars. So from a political perspective what we're doing makes sense - even if we don't like bailing out stupidity and greed on Wall Street. There's only one problem here: We're no longer helping the world stave off the Soviet Union and communism (and, No, al Qaeda is not the greatest threat we have ever faced). The cooperation of our allies is now purely commercial and selfish. They want to keep our markets stable. If we blow it there's no telling what could follow.
So, where does this leave us? Here's what I see. President Obama is going to have to make a decision on Secretary Geithner within the next 3 months. If Geithner continues to come across as Sylvester Stallone Obama's going to have to reach for a political Robert De Niro for Treasury (is Paul Volcker open to stepping in?). Here's why. We're eventually going to have to nationalize the failing banks.
A Treasury Department that does little more than prop up the banks with trillions of dollars (there's at least $45 trillion in CDS counter party contracts) that doesn't reach U.S. consumers is simply not sustainable. Few will have much confidence in a partial nationalization game plan (or any Obama plan) if Geithner continues to falter.
What we're facing is too important to continue messing around with weak personalities and a steady drip of shell game AIG bailout stories. We need a Shakespearean performance from the Treasury Department on this one. At this point I'd even settle for the smoke & mirrors of a Rocky movie if it meant buying time for Geithner to grow into his position.
We simply need a better performance from Geithner.