Less than a day after the federal government rode to another banks rescue, President-elect Barack Obama confirmed his intent to raise the ante on the Bush administrations intervention in the economy.
Obama held a short news conference Monday to introduce his top economic advisers, including New York Federal Reserve chief Timothy F. Geithner (Obamas pick for Treasury secretary) and former Treasury Secretary Lawrence H. Summers (his choice for director of the National Economic Council). The two represented, if not the opposite poles of policy, at least a very different set of constituents: On Obamas right stood Geithner, who has helped funnel huge sums of tax dollars to troubled financial institutions, and on his left stood Summers, who wants Washington to spend an extraordinary amount on another stimulus package.
This two-pronged approach is appropriate. As the precipitous decline of Citigroup Inc. demonstrated, deep problems linger in the financial industry and will continue to do so until lenders scrub vast numbers of bad loans and related financial instruments from their books.
But the new administration needs to do more than just broaden its focus beyond Wall Street. It needs to come up with a better rationale for when and when not to intervene in the market. Washington has increasingly acted as the insurer of last resort for the financial industry, sweeping in with a variety of rescues whenever a large institutions slide threatens a significant number of its business partners. By that faulty logic, theres no reason not to provide a bailout to any other supplicant with a large network of suppliers and investors, such as Detroits automakers. Obamas team needs to establish principles that clearly connect the aid supplied, the conditions imposed and the benefit to taxpayers. - Los Angeles Times
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