Washington Post Columnist
Tuesday, February 24, 2009 2:00 PM
Washington Post columnist Eugene Robinson was online Tuesday, Feb. 24 at 2 p.m. ET to discuss his recent columns and the latest news.
Submit your questions and comments before or during the discussion.
Today, Robinson wrote about the possibility of the Obama administration nationalizing Citibank, Bank of America or another major bank.
Eugene Robinson: Hi, everyone. Tonight, the president speaks to a joint session of Congress. The theme: money, or the lack thereof. It's all about the economic crisis, at the moment. This morning's column, for those keeping score, was about the troubled banks and how we're going to have more transparency so all can see which are "zombies" and which aren't. Through all that's happening, President Obama's poll numbers remain remarkably high. I have a feeling that the public is more rational about the crisis than the punditocracy here in Washington.
Arlington, Va.: Is there any good reason why Wall Street should have a say in its bailout and why the big banks shouldn't be nationalized? The arguments I have heard (from mostly right-leaning analysts) that nationalization would interfere with the "free market" is not very compelling given the results of the "free market" experiment of the last 8-10 years.
Eugene Robinson: My personal opinion is that one or (probably) more of the big banks will ultimately have to be nationalized, although it will be called something else -- temporary receivership, or pre-privatization... But I could be wrong. The reason not to do it is less ideological than practical. If you're the Obama administration, do you really want to have to try to run Citigroup or Bank of America? That's not something that government should have to do, or that government would be best at. But it may be necessary.
Texas: I think everyone is hungry for some balanced news. When will the media/administration/those in charge report not only how many bad banks/foreclosures/unemployed/etc., but give us some figures of how many banks are okay, how many folks will KEEP their homes, how many folks are working and WILL NOT lose their jobs? I feel I am the only one working and paying my share. Please give me some hope.
Eugene Robinson: That's a good point. Sen. Amy Klobuchar of Minnesota had a good op-ed in The Post this morning talking about the many banks in her state that did not overextend themselves. The problem is that they are being dragged down by the "zombie" banks that went overboard.
Atlanta: There's a fallacy we as a nation have to address, I just don't know which one it is exactly. Is it the fallacy of the stock market? People are more up in arms over the tanking stock price than the solvency of the company and the industry. The fed just took over 2 or 3 banks about 2 weeks ago. They were insolvent. How does the Citi or Bank of America's differ to the point of calling it nationalization?
Eugene Robinson: Citi and B of A differ only in size and complexity, really. But that's still a big difference. The FDIC is perfectly capable of taking over, running and fixing a small or medium-size bank. Doing the same with one of the giant global banks is another story. It should be noted, however, that the British government has taken on that task with its big troubled banks.
The New South: Mr. Robinson, I hope you are not concerned about being vilified by commenters to your essay, including a banker who claims you know nothing because you've never run a bank, and who also claims the president is a socialist. Other posters call you a procurer for MSNBC. Diane Rehm conducted a panel on her program today, and one of the investment bankers suggested that the total of credit default swaps is only 26 trillion dollars, as opposed to a caller's estimate of 62 trillion. The truth is quite simple: derivatives and unregulated speculation by the shadow banking system infected all banks, based on fancy MIT models, led us here. I am concerned that conservatives are pushing for nationalization just to be able to pin that tail on the president when election season begins two years from now. Your thoughts?
Eugene Robinson: A certain amount of criticism -- and, occasionally, even a little villification -- comes with the turf. I did find it fascinating to hear Republican voices such as that of Lindsay Graham suggesting nationalization. They might actually end up giving Obama political cover if that's a step he decides he must take.
Mortagage bailout: Remember those school days when someone in the class did something bad, but wouldn't admit to wrongdoing and the teacher then punished everyone? That's what it feels like for those of us who bought houses we could afford and kept up with our mortgage payments, and now have to subsidize the bailout of those who did neither.
Eugene Robinson: To me, even greater responsibility lies with the financial wizards who bundled those sub-prime mortgages into securities, bought and sold them with tremendous leverage, invented "synthetic" mortgage bundles and made them into investments, and then developed an elaborate system of insurance to guarantee all these real and imagined securities. They created a problem that is vastly greater than the sum total of the underlying mortgages.
Demographic question: Hello and thanks for the chat. I'm curious about the trend that each time the president or one of his cabinet announces some effort to address the current economic challenge, Wall Street responds pessimistically. It makes me wonder, not for the first time, who "Wall Street" is. Are there demographic surveys that lay out who this group is? Leaving aside the wisdom of paying attention to a group that didn't seem to properly prepare for this downturn and the gross self serving, hopefully, outliers like Madoff, is there a bias that would cause "The Street" to react negatively to anything the president does? Keep in mind, I'm NOT suggesting a conspiracy of any sort. Well perhaps dunces. Rather, I'm asking seriously what the behavioral effects are on Wall Street that may or may not be predicted by demographic variables including party affiliation.
Eugene Robinson: I think we're all right to be skeptical of "Wall Street" motives and sincerity. But I do think there's probably one underlying reason why the markets have been so surly, and that's the fact that the administration hasn't yet made a definitive statement on how it will handle the problem of the banks. Which is at the heart of the credit crunch. Which has to be solved before the economy can perk up again. I think the Obama team chose what looked like a reasonable course of action -- try to avoid nationalization, try to coax investors into showing a little confidence, but don't rule out nationalization because it might ultimately be necessary. I think you'd have to say that this all-options-open approach isn't working, at least not yet. The markets seem to be looking for something more definitive.
Washington, D.C.: Here's the thing: Citigroup's market capitalization (the value of the entirety of its stock) right now is approximately $30 billion - about half of what Warren Buffet is said to be worth. You know why neither he, nor his company, nor any other person or group who could put together $30 billion is going to buy Citigroup? Because the company may have liabilities in the hundreds of billions. That's the problem and there is no solution for it that does not involve a substantial influx of government (i.e., taxpayer) cash.
Eugene Robinson: Absolutely right. But that still leaves important questions unanswered. Exactly how big are those liabilities? And are they so big that the best course of action would be to somehow break Citi up and start over again?
La Vista, Ne: The CEOs of financial institutions have bankrupted their companies. They have demonstrated their incompetence in the most egregious way. Why is Obama giving more billions in public money to the very incompetents who have lost billions?
Eugene Robinson: In Britain (and much of the civilized world), when the government has to step in and take a large stake in a company to bail it out, generally one of the conditions of the aid is that management has to go. Now.
Kingsland, Ga.: In today's column, you stated: "It's understandable that Treasury Secretary Timothy Geithner and the rest of Obama's economic team would be wary of full disclosure...".
Why do you feel that they are wary of full disclosure? I don't doubt your statement; but I'm puzzled why they wouldn't want to get it all on the table now, rather than later, since this is clearly the wreckage of the previous administration. The Obama administration seems to have a lot of goodwill behind them right now, so why not spend some of that capital to make the really drastic changes that are needed?
Eugene Robinson: I'm with you, but it took me a while to get there. Hank Paulson and, later, Tim Geithner both leaned on relatively healthy financial institutions to participate in the bailout plan. This was to avoid stigmatizing the less-healthy institutions who desperately needed the money. The theory was that if you identified a bank as especially troubled, investors and depositors would flee and you'd inevitably end up with a failed bank. This "everybody in the boat" approach has kept depositors from getting nervous, but it makes investors suspicious of the whole passenger list. So instead of a few big banks sinking catastrophically, we've seen the whole boat taking on water.
Richmond, Va.: A nice majority of Americans, in a new NY Times/CBS poll approve of the job that Obama is doing on the economy and are confident that he will succeed. That same poll, according to the WaPo this morning, said: "... Obama was striving to work in a bipartisan way, but most faulted Republicans for their response to the president." Now, the current Republican strategy is to "just say no" to the stimulus bill and let it fail seems a little shakier with those kind of numbers, because, if it fails, the Democrats can say it was the Republicans' intransigence that contributed to its failure. Bottom line: at the moment, it is a lose-lose for the Republicans, right?
washingtonpost.com: Obama Gets High Marks for 1st Month
Eugene Robinson: Seems that way to me. For the life of me, I have never understood how the Republicans hope to profit from their "just say no" stance. These polls should make it clear to them that it isn't working. The public gives the Obama administration credit for at least trying, and seems inclined to punish Republicans who don't try.
Delta House: Gene,
Your comparison of the bank execs to the frat brothers in Animal House was right on the money. And don't forget an equally apt line from the movie: after a bunch of guys "borrow" some sap's car and trash it, one of them says, "Hey you (bleeped) up; you trusted us!" The only difference from the movie is that in real life, we were the saps.
Eugene Robinson: Word.
Re: Wall Street Demographics: I was watching Bloomberg news last week and a commentator asserted that we are in this mess because of "narcissists with MBA's." Having worked in brokerage/banking, I think he hit the nail on the head. When the guy across the street starts racking up huge fees on derivatives, the pressure is on for everyone else up and down the street to get their share of the sexy new business. Then it's a race to the bottom.
Eugene Robinson: Absolutely. And where were the regulators? Did they pay any attention to the Cassandras who were warning that this whole huge edifice of the imagination would collapse? Isn't that why we have an SEC and a Fed, to keep an eye on this stuff?
Arlington, Va.: Today I saw a story about the three words "Produce the Note" which is a strategy for staying in you house if it's being foreclosed. Basically the loan servicer is often unable to find the actual note for the loan so you get to stay while they search. The example person they used was a middle aged lady who bought a house in the '90s for $39,000 dollars. But, she refinanced with cash-out several times and now owes $149,000. This is a problem. People who treated their home like a cash machine should not get bailed out.
Eugene Robinson: People did treat their homes like cash machines. A lot of people. That's one reason why we could have a sustained economic boom, based on consumer spending, at a time when middle-class incomes were stagnant.
Sewickley, Pa.: I see our former president is going on an extensive speaking tour. What gives? Does he need the money? As I recall his dad and Mr. Reagan gave a couple speeches for very healthy fees after leaving office, but then they went quietly away. How can we miss him if he won't go away?
Eugene Robinson: Clearly, he doesn't need the money. It must be hard to go from being president one day and private citizen the next. How can we miss him? Let me count the ways.
Baltimore: Did you see Captain Sully's testimony on Capital Hill today, where he noted that he'd seen his pay cut by 40% and his pension evaporate within the last decade? He traces the downfall in working conditions at airlines to the '70s deregulation. Deregulation didn't just hurt banks.
washingtonpost.com: Controller thought ditching in Hudson spelled doom
Eugene Robinson: I hadn't seen that. It's a reminder that deregulation isn't the ideal solution to every problem.
washingtonpost.com: Amy Klobuchar: Banks That Had a Brain
"Fairness": I think that it's time for the American people to be told the uncomfortable truth about where we are and what will need to be done to rectify this economic situation. As difficult as it is to hear, there is no such thing as a "fair" solution. Nothing the government does, including doing nothing, will be fair to everyone. It was not fair to rescue Bear Stearns and let Lehman Bros. fail. It was not fair to give hundreds of billions of dollars in aid to banks that invested in bad mortgage-based assets but leave the homeowners bound to those bad mortgages twisting in the wind. Like it or not, the only way to right this ship will include relieving some people and institutions of the consequences of their bad decisions. It's a modern day formulation of the classic dilemma - how much of your nose are you willing to cut off to spite your face? How much pain are you willing to endure to teach other people a bad lesson? As someone who has "played by the rules," I don't like it. But I truly believe that the alternative would be much worse.
Eugene Robinson: I think most people realize this. There's a spate of new opinion polls out this week, and in sum they seem to agree that people don't like bailing out those who made bad decisions, but believe it's necessary. In general, people tend to have more sympathy for overextended homeowners than for Wall Street executives.
Love thy neighbor: It's a sad commentary on our society in the 21st century that some people think that the troubles of our neighbors are not also ours. If my neighbors lose their homes when adjustable rates go up, then the local market is depressed. If our neighbors in Michigan lose their jobs when the manufacturer folds, then suppliers to that corp may also fold. When unemployment goes up nationwide, then certain types of crime may go up. If publicly held corporations go bankrupt, then shareholders lose their money; perhaps retired folks lose their pensions. This is not just about some who made mistakes, it's about all of us in this together.
Eugene Robinson: And if my neighbor's house is foreclosed on, my property value goes down.
Alexandria, Va.: Eugene.... you STILL DON'T GET IT. Obviously, you and your fan-boys here have never really given the "stimulus package" a close look. With the exception of some minor tax breaks, the bill was a bunch of government spending initiatives, and it appears there is another $410 billion bill that will be coming along in the near future. The Repubs and the 7 or so Democrats voted against the bill, because it will not stimulate. This is just an extension of the massive spending that occurred during Bush's year's of Democrat-lite spending. Anyway... if the stimulus bill fails to do as promised... it is likely Obama will blame Pelosi and Reid by saying they crafted it and promised it would work...which would be the first true statement coming from Obama, since he gave no guidelines on how the stimulate the economy, other than saying an $800 billion price tag seems about right.
Eugene Robinson: We don't shout here. If you believe that only tax breaks are stimulative, then obviously you're not going to like the stimulus package. I believe otherwise.
Fredericksburg, Tex.: I wonder had John McCain been elected if he would have protested new high tech helicopters? Don't you agree that he demeaned himself by that comment?
Eugene Robinson: I guess the answers would be yes and yes. I think McCain probably would have made an issue of the Marine 1 fleet if he had been elected. And I think his raising it with Obama in that forum seemed kind of personal and petty. There were other ways to make his point.
Boston: Gene, There was this guy who was pretty clear-eyed about the markets 13-17 years ago when he started a magazine called SmartMoney and then a website called TheStreet.com. He disappeared for several years, replaced by a crazy clown who made a lot of money off a silly shtick. Going around the webs today, I see that the sane guy is back, and he is asking some pretty compelling questions on nationalization -- Cramer: Nationalizing Banks Is Mission Impossible
Eugene Robinson: Cramer makes a vigorous and cogent argument here against nationalization. It is, indeed, a big step.
Rockville, MD: And if thy property value goes down, I might actually have a chance to buy one day after saving my pennies like the proverbial ant in my dingy rental.
I'm sorry for people who bought into the bubble and are now left holding the bag, but I didn't hold a gun to their heads and make them sign their jumbo mortgages.
Eugene Robinson: Any solution that puts a high floor under housing prices is, indeed, unfair to you. As an earlier poster noted, any solution is going to be unfair to somebody.
My time is up for today, everyone. Thanks for participating, and I'll see you again next week.
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