Comment on the Belmont Club: "Risky business"

Wheels within wheels. Perhaps Obama's inner circle had already picked Geithner as the fall guy and crafted this without getting him onboard and delivered it in a way calculated to elicit his rejection. Somebody has to go to the wall. Why not Tim? If Geithner goes that might give a 5% bounce in the market. Dodd is already heading out the door, call that good for another 5%. If Barney Franks decides that the tea leaves from Tuesday, when his own district went Republican, make this a good time to take an extended tour of equatorial fleshpots then that might produce a seismic bounce of say 10%. If the Fannie and Freddie crowd get tossed under the bus then Obama may tell himself that he can gain enough momentum to survive.

None of that may be true or it may be true only in the sense that Obama and the inner circle may think that way. As I said before, it is possible that this was announced to distract from the profit reports issued by his friends at Goldman Sachs. On paper they would be severely impacted by this but seriously does anybody think that anything will be designed that is not in their interest?

The problems the US financial industry faces are, incompetent and sclerotic regulation, opacity and dishonesty, high taxation, and increased foreign competition. Those same problems were the reason for the repeal of Glass-Steagall in the first place. The hope was that somplicity and clarity and increased domestic competition would drive down costs and benefit consumers as well as produce more jobs. To a considerable extent it worked. The problems we have were largely generated by the same crowd who are now in charge and blaming the system they established and then milked. If Obama and Co. succeed then I predict a much shrunken financial services industry with a favored few, such as Goldman Sachs, presiding over a desert tax farm. The chief beneficiaries will be in Shanghai and Frankfurt.

Would Bernanke leaving help or hurt? Who is really going to still have a chair in the inner circle when the music stops?