A Look at Obama, Banks, and Being Between a Rock and a Hard Place

The decision by the Bush and Obama administrations to use taxpayer money to prop up troubled financial institutions has produced a growing populist outcry that threatens to undermine the administration's ability to win Congressional approval for future legislation to counter the recession, and/or to win approval for the record-setting $3.55 trillion 2010 budget proposed by Obama on February 26.

In effect, the Obama administration has tied itself to a policy that shows every sign of becoming an inexorably-tightening hangman's noose around the president's neck.

Not only does public anger over the current bailout strategy threaten the administration's executive authority, but it also the carries the political risk of linking the White House to the now-loathed Wall Street establishment.

Democrat Robert Shapiro, former Under Secretary of Commerce for Economic Affairs during the Clinton administration, and chairman of the economic advisory firm Sonecon argues that, by generally deferring to Wall Street leaders, the administration has become the target of populist resentment, drawing attention to the fact that many in the administration came from the financial industry, or the New York Fed -- which is closely linked to the industry, including Larry Summers and Tim Geithner. Now, Shapiro added, Summers and Geithner are in position of virtually defending Wall Street - only backing off on the AIG bonus issue, for example, when the public rose up in fury.

Shapiro argues strongly in favor of temporary nationalization of those banks which are on the verge of collapse. A full scale, short-term takeover of insolvent institutions "is the only reasonable course at this point," he said, if that means "pulling out the bad assets and the leveraged borrowed to hold them (without having to put a particular value on them), and selling what's left to a new group, under a new name or the old one. It could actually be done very quickly - so the institution is closed for a short time while the depositors' accounts are quickly transferred to the new entity."