Epiphanyblog

All about ideas…

Geithner: Solving the financial crisis

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Geithner’s press conference obviously left a lot to be desired. Just look at the market drop today. No one, worldwide, is satisfied. Nevertheless, this administration has only been in office for three weeks.

How many other administrations have dealt with so many combined, negative economic factors at the beginning?

Geithner has a tough, almost insurmountable, road ahead of him. Nothing like this has existed since the Great Depression. Solving it won’t be easy, especially in a worldwide economic recession in which all economies are so closely tied together.

So, even while the market wanted a quick answer, because that’s what we Americans want and the world banking system hoped for, answers to the banking problem are not easy.

So, settle down everyone and give the guy a couple of weeks to lay out a plan in more detail.

I took great heart from his initial statement…and I think he’s on the right path. It ain’t gonna be easy. Banks are gonna scream bloody murder at having to take a loss on their balance sheets when they sell those toxic assets…but selling them at a fair price will be the only way they’ll survive. They’re also gonna scream at having to make loans with government money when they’d rather buck up their balance sheets. For far too long, financial institutions have worked on the premise that profits for shareholders was the only way to do business.

That is a fallacy. What brought banks – like Wells Fargo and BofA – into fashion was personal banking. Knowing their customers.

Unlike the economic gurus who argue for fewer and larger banks, I believe that mega-banks are an anathema to business growth and productivity. Small banks, focused on the community and community businesses, provide greater business impetus. Moreover, small banks that focused on sponsoring local businesses and development, rather than on unsustainable real estate gambles, have weathered the financial meltdown better than the megabanks that focused only on profits, regardless of the risks involved.

TR was right when he pushed through legislation that broke up monopolies. Unfortunately, GOP administrations and Congresses failed to learn from TR. Over the last 30 years, mega-mergers brought enormous wealth to the few while hurting the overall economy as we now see.

Nevertheless, Geithner and his cohorts at the FDIC and the FED have their work cut out for them. It’s going to take all of their combined efforts to clean up the mess created during the last 10 or more years. As a NPR financial analyst stated today, one press conference does not solve the problems facing the American banking system.

A lot of details have yet to be worked out…and those solutions are not going to be easy. But he’s on the right path.

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