Time to Take the Steering Wheel out of Geithner's Hands

On February 10th, the New York Times reported that there had been a "spirited" battle within the Obama administration over restrictions on executive pay and bonuses, and over attaching stringent conditions to any bailout money given to banks.

The clash pitted Tim Geithner, who opposed the restrictions and conditions, against David Axelrod, who favored them. According to the Times, Geithner had "largely prevailed."

In light of what has happened since then, that outcome must now be viewed as a tragic surrender to Geithner, Summers, and the political/Wall Street class -- a "victory" that could lead to the unraveling of the president's entire economic policy.

Maintaining the public trust is always important for a leader, but especially so during hard times. There is a fascinating chapter on Nelson Mandela in Stan Greenberg's new book, Dispatches from the War Room, in which Greenberg writes about how even the revered Mandela suffered a loss of public confidence when change did not come fast enough after he took office. "Don't assume the current euphoria, even with your high approval rating will carry you through," Greenberg counsels Obama, stressing the need to try to build up enough trust so that the public will stay with the president until they can actually experience change.

The Axelrod camp understood this and, according to the Times' February story, argued that "rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year's bailouts could feed a potent political reaction if the administration did not demand enough sacrifices from the companies that receive federal money."

Axelrod was right. And his loss has already cost the young Obama administration a lot.

No wonder the public is not convinced when Geithner, having laid the groundwork that made the AIG bonuses possible, and having gotten Chris Dodd to include a bonus loophole in the stimulus bill, now acts shocked over the bonuses.

Geithner's feigned surprise at AIG has been a body blow to public confidence in the president. According to Sunday's Rassmussen poll, just 12 percent of those Rassmussen defines as "Populists" have a favorable opinion of Geithner while those Rassmussen identifies as "America's Political Class" have a 76 percent favorable opinion of him.

It was painful to watch Obama, just hours after Geithner had admitted his role in the Dodd/bonus loophole affair, go on Jay Leno and say that Geithner is doing an "outstanding job." Even before Frank Rich's Sunday column was titled "Has a 'Katrina Moment' Arrived?," Obama's assessment had more than a whiff of Bush telling Brownie he was "doing a heck of a job."

My dictionary defines outstanding as "excellent, exceptional, superior to others in the same category." So how could Obama say that and then, not a minute later, tell Leno that his administration plans to "open up separate credit lines outside of banks for small businesses" and "set up a securitized market for student loans and auto loans outside of the banking system" in order to "get credit flowing again"?

Back in January, after the Senate voted to release the second $350 billion tranche of TARP money, Obama had told the nation that he was "gratified" he'd been given the authority to "maintain the flow of credit to families and businesses."

Now, here he was, just over two months later, basically admitting that we have to find other ways to "maintain the flow of credit to families and businesses" -- completely contradicting a central tenet of the bank bailout, expressed by Axelrod in January when he told George Stephanopoulos that the president was "going to have a strong message for the bankers. We want to see credit flowing again. We don't want them to sit on any money that they get from taxpayers... And we have to make sure that the money doesn't go to excessive CEO pay and dividends when it should be going to lending."