Tom Blackburn talks turkey:
At the start of the 20th century, President Theodore Roosevelt saved the public from big business. A century later President Barack Obama has to wade back into the swamp T.R. drained a century ago. It refilled while no one was watching.
Mr. Obama's first step was to ask for a consumer financial protection agency. That bill is meandering through the House. It promises more small print for conscientious borrowers and investors.
Step Two was to cut or ban some over-the-top compensation for geniuses who run financial institutions. They are trading with money the government borrowed from China for them. Their bonuses were coming from the same stash. Inconveniencing whiny multimillionaires plays well in the tabloids. But nothing changed for the long haul. Their bad attitudes and empty threats of quitting only got worse. So there is no salvation in sight on the salary front.
Last week, the administration announced the third step, which consists of dealing with the problem of institutions "too big to fail." This is the big one. It was time to bring out T.R.'s big stick. The plan they announced, however, had the heft of a No. 2 pencil.
"Too big to fail" is shorthand for banks - and, as it turned out, other things - that were so big or so interconnected that everything would crash down around them if they failed. An example is American International Group, which brilliantly maneuvered into a position in which banks worldwide depended on AIG money for their survival. Then AIG didn't have the money when it was needed.
One could write the story of the 2008 collapse in terms of the falling of dominoes that were too big to fail. Still, even as the government stood them back up, JPMorganChase acquired Bear Stearns, Bank of America got Merrill Lynch and Countrywide, and Wells Fargo absorbed Wachovia. Those banks were too big to fail last fall and are bigger this fall. That's going in the wrong direction.
Mr. Obama appears ready to live with bigness, though, and try to manage it. His plan would make it easier for the government to step in and wind down the affairs of a monster the way it does with any little county bank that fails. The monster could indeed fail, the thinking goes, but it would do so neatly and slowly, and with less fuss than a bailout.
Money for the unwinding, in this plan, will come from payments into a fund for failure. The payments will be made by the institutions that are designated too big to fail. First problem of many: If they all go at the same time, as they did last fall, the fund itself will need a bailout.
Treasury Secretary Tim Geithner is whispering in President Obama's ear that banks that aren't too big can't put together the private-sector financing to fulfill Mr. Obama's green energy hopes.
Alan Greenspan, the former Federal Reserve chairman, has been stripped of his infallibility merit badge, but that doesn't mean that he is always wrong. Sounding more like one of T.R.'s trust-busters than his mentor Ayn Rand, he said last month, "If they are too big to fail, they are too big." He even mentioned that getting broken up by the government in 1911 was the best thing that ever happened to the original Standard Oil. The pieces were more efficient and profitable than the monster they came from.
Cutting monsters down to human size is not as easy as it sounds. But the alternative is to live under institutions that may get in the habit of doing what a bunch of them just did. Too-big-to-fail failures brought the world's economies to the rim of another Great Depression and left them behind the eight-ball for probably years to come. The failures are not only in denial; they take offense at any interruption in the resumption of the follies that almost laid us low.
The swamp must be drained. Mr. Obama's plan, however, looks more like marking a path through the swamp for Treasury Department airboats.
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