Ron Suskind's new book describes how Obama wanted to follow the Scandinavian approach to financial crashes by shutting down the banks, wiping out shareholders, and bringing in new management. He charged Geithner with figuring out how to shut down Citigroup. Geithner preferred to ignore his boss's wishes. An earlier book, throws further light on the relationship between Geithner and Citigroup, in which Geithner was offered the job of running Citigroup.
Sorkin, Andrew Ross. 2009. Too Big to Fail: Inside the Battle to Save Wall Street (Allen Lane Penguin Books, London).
61: According to his account of the Lehman crisis, Geithner had been quietly approached in November 2007 by Weill and asked if he would be interested in becoming boss of Citi, a move that could garner him untold millions. Geithner was certainly interested, pondering the matter while on long walks round Larchmont with his dog, Adobe, but a firm offer never materialized.
At that time the credit crisis was really starting to bite, and the giant bank had just reported a record loss. "Weill had no executive function at Citi. He wouldn't be the one making that call if they were seriously interested in giving Geithner the job" points out one banking analyst in commenting on the story. "How else can we interpret this but as a nice juicy carrot being dangled in front of the President of the New York Fed by a bank that was going to need Fed help in a big way."
I really do wish that Obama had followed the Scandinavian approach but i just don't think it was politically feasible.
ReplyDeleteI just dont see how even a house and senate filled with Democrats would have gone along with the plan.
Maybe there needs to be developed a new approach shuting down a major corporate entity that doens't wipe out shareholders, but does effectively replace all upper echelon staff. It could be referred to as a "rescue from management" reorganization. The executive suite is wept clean along with attached compensation contracts. Add probable claw backs to the cncept and pretty soon the industry or corporation in question will likely see the face of the lord, so to speak, and lead a new and cleaner life.
ReplyDeleteFor Jack:
ReplyDeleteThe shareholders are supposed to hold the management accountable. If they get wiped out it is because they failed to do so. But it is possible that the Republicans closed that door in 1995:
http://www.oreilly-sucks.com/News/clinton.htm -------------------
On December 20, 1995, President Clinton vetoed the Public Securities Litigation Reform Act, which would have restricted lawsuits against corporation accused of securities fraud. In his veto message, Clinton presciently noted that while he supported the notion of reducing frivolous lawsuits: "I am not, however, willing to sign legislation that will have the effect of closing the courthouse door on investors who have legitimate claims. Those who are the victims of fraud should have recourse in our courts. Our markets are as strong and effective as they are because they operate -- and are seen to operate -- with integrity. I believe that this bill, as modified in conference, could erode this crucial basis of our markets' strength." The GOP Congress overrode Clinton's veto.
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