Last week Brad DeLong said the government had three distinct narratives to explain the bank plan to carping foreign governments and a persnickety media. In short: "1) The banks have us by the plums; 2) The government has a chance to make a fortune; and 3) We have to play out the hand before we ask for a new deal." I don't know about the last two (Geithner shouldn't be promising any kind of fortune and ix-nay on the ationalization-nay) but I'm most interested in the first lets-praise-the-banks narrative because, frankly, I find it the most convincing.
No, I'm not saying Obama should call a press conference where the media can watch Vikram Pandit, Ken Lewis, Lloyd Blankfein and the president sip espresso and compliment each others' decision-making skills and matching pocket squares. But I don't think we've heard a good enough argument for why the banks should be saved, why they're so important to America's long-term economic security that they're worth sinking a trillion dollars. Here's DeLong:
Keeping the economy near full employment requires pushing asset prices back up to values at which businesses selling stocks and bonds can obtain financing that makes it profitable for them to expand. But pushing asset prices back up enriches the bankers whose overleverage got us into this mess, and prevents them from suffering their just punishment. There is no way out of this dilemma.
Actually that makes a lot of sense! You don't need to be a Randian to see the central necessity of a banking system that does not totally explode this year. Prosperity comes from growth. Growth requires investment. Investments require banks that work and are, preferrably, semi-solvent. But although it seems relatively simple and nonpartisan, it is apparently extremely complicated, politically, because Obama isn't saying it, and so partisan that the bank bailout was a common thread in the ramshackle tapestry that was the tax day tea parties.
So count me down as a big fan of the "the banks have us by the plums" argument - not merely to justify PPIP or another plan that follows, but to underline the thinking behind Obama's economic braintrust. Call it intellectual transparency. Perhaps if Obama spent more time explaining how our system works rather than explaining why it's not Sweden, America would consider keeping its tea parties inside.