Needed to oversee bank bailouts: An experienced business executive who understands how incentives work on Wall Street and can anticipate problems and suggest solutions
The U.S. government is investing more than $1 trillion in bailing out financial institutions while doing its best to avoid taking them over. Yet no one in the government is in charge of managing this massive investment of taxpayer money. Meanwhile the public is revolting over its suspicion that bankers are using taxpayer dollars for their own purposes, rather than unlocking the credit markets and restoring our financial system.
Thus far, the Obama Administration has acted like it wants to be a passive shareholder, staying out of the way of management. But as soon as an issue hits the Internet and the media take it on, both Administration officials and politicians start publicly attacking management and vowing "never to let this stuff happen again."
Then it happens again because no one is in charge.
Granted, there are regulators doing "stress tests," people drawing up plans to avoid future problems, and meetings galore. But no one is taking the role of a lead investor or creditor. A single point person is needed to review issues with the banks, anticipate problems, sense the public's evolving response and resistance in Congress, give the banks official guidance, and advise Treasury Secretary Timothy Geithner, Federal Reserve Chair Ben Bernanke, and President Barack Obama.
enormous sums, then grandstanding
When no one is in charge, everyone thinks they can be in charge. Even more troubling are the politicians in the Senate and House who seem to be motivated to posture so as to win political points and cover their flanks rather than solve the massive problems the U.S. faces.
From the $351 billion it has committed to salvage Citigroup (C) to $173 billion (and still counting) for AIG (AIG), the government seems prepared to invest enormous sums while letting these firms run independently. Or sort of independently, as AIG Chief Executive Officer Ed Liddy learned the hard way last month. He was subjected to enormous abuse by Congress for executing the bonus plan that everyone from the Federal Reserve to the Treasury Secretary knew about in advance.
At present no one in the Obama Administration has experience in the business world, understands how incentives work on Wall Street, and is capable of anticipating issues and advising the President and Treasury Secretary how to solve them before they get out of hand.
What's needed is a point person—a "bank czar" if you will—to represent the government's multibillion investment of taxpayer dollars in financial institutions. This person would have responsibilities similar to the automobile head, Steven Rattner, who seems to be making good progress in sorting out the General Motors (GM) and Chrysler bailout requests.
Geithner is overloaded with work
As I envision it, the banking head would report to Geithner—with a dotted line to the Fed's Bernanke—taking the day-to-day load off their respective plates. To be clear, this leader would be involved only with those banks that have received government funds, not the thousands of independent banks. The troubleshooter should have extensive banking experience, but not be tainted by the current crisis. Bob Steele, deputy secretary of the Treasury in the Bush Administration, would be a good choice. So would Bill Harrison, the very successful former chair and CEO of JPMorgan Chase (JPM).
One might ask: Isn't this Secretary Geithner's job? The problem is that Geithner has so much on his plate, especially in creating fiscal schemes such as the toxic asset plan, that he doesn't have time to manage the day-to-day details of overseeing such enormous investments of taxpayer money. Had a bank czar been in charge, the AIG bonus fiasco could have been avoided by renegotiating compensation arrangements long before they triggered that public outcry.
Beyond the practical realities Geithner faces, the Administration seems genuinely uncertain about how to handle its fiduciary responsibilities for these vast sums. It wants to bail out the banks without taking them over. But when something goes wrong or Congress rears its ugly head, the Administration feels compelled to jump in with both feet and react to the situation before it gets out of hand.
With so much money invested in these financial institutions, the U.S. government has both a right and a responsibility to be engaged in the actions being taken to right the ship and recoup taxpayers' money. This is the only way to oversee the use of government funds and to get on top of compensation and the myriad other issues surrounding use of the bailout funds that have so outraged the general public. That's why having a single point person to coordinate all these issues for the government is a far more responsible way to fulfill its fiduciary responsibilities.