My Worst Fear

As explained by Rob Kuttner (A strong Obama supporter who previously defended of these appointments using the "Obama is a secret progressive using moderates to govern progressively" theory):

In the past two weeks, political support for the Tim Geithner/Larry Summers approach to solving the banking crisis has been unraveling in Congress, with blistering criticism from legislators of both parties.

The financial danger is that the Treasury will burn through the money approved by Congress without fixing the system. The political danger is that Republicans will posture as the populists, expressing faux-indignation that so much taxpayer money has gone to Wall Street. The overarching risk to Obama's presidency is that the plan won't work, and his political capital will evaporate along with the financial capital.

There is a whole other path to repairing the banking system, and a whole other set of experts, equally brilliant and better in touch with financial realities. But their unfiltered views are not reaching the president. This loyal opposition, of which more shortly, is not limited to lefties; it spans the ideological spectrum.

. . .

In defending the AIG bonuses, CEO Edward Liddy actually said that you had to pay bonuses to attract and keep "the best and brightest talent," in this case the very people who are costing America's taxpayers $175 billion and counting. Far from receiving bonuses, these people deserve to share a cell with Bernie Madoff.

By the same token, Larry Summers and Tim Geithner are not the only smart people about finance. If President Obama wants a second opinion, he could begin with Paul Volcker, nominally chairman of Obama's own "Economic Recovery Advisory Board," which so far is mainly window-dressing. According to my sources, Summers and Geithner seldom talk to Volcker because they don't like Volcker's criticisms of their plan.

The president could also consult with several people in the Federal Reserve System who have a different view, and also the FDIC leadership, and the Congressional Oversight Panel that was created by Congress as the precondition for appropriating the TARP money. The panel has the statutory right to get documents from the Treasury. But under Geithner as under Paulson before him, Treasury has been stonewalling. Legislators of both parties are increasingly viewing Geithner as part of the problem.

As the administration continues its coziness with Wall Street and the approach fails to bring zombie banks back to life, populist anger passes to both the Republicans and to media tribunes such as Lou Dobbs. This brand of populism is one part anti-Wall Street, but two parts anti-government and anti-immigrant. It has no strategic coherence as a recovery plan.

The alternative to Lou Dobbs' brand of populism is of course Franklin Roosevelt's. But something is really off when Sen. Sam Brownback, the AEI, and the Kansas City Federal Reserve Bank start sounding more like Roosevelt than Barack Obama's treasury secretary does.

With everything else going on right now, this is my greatest fear. Some on the progressive blogs have taken the position that this is only one aspect of his Administration, and that there is plenty of progressive change to come in other areas. I couldn't agree more, but that's the same reason I'm very worried. Nothing exists in a vacuum, and although the economy may just be "one issue", it will dominate news and national discourse for much of the discourse for much of the foreseeable future. While they may not control directly control other aspects of his agenda, their actions will go a long way in determining the political position he's in when he decides to take up the other fights.

Let me repeat: The actions that Larry Summers and Tim Geithner will have a bigger effect on Obama's political capital than anyone in the Administration short of Obama himself. Anyone whose has followed the careers of Tim Geithner and Larry Summers should understand just how terrifying possibility is.