Secretary Geithner may not know it yet, but his plan for resolving the toxic asset problem is dead. The Treasury department killed it with this announcement:
Treasury Department lawyers have determined that firms participating in a $1 trillion program to relieve banks of toxic assets could be subject to limits on executive compensation, contradicting the Obama administration’s previous public position, according to a report to be released today by a federal watchdog agency. . .
Speaking last month about the initiative to buy toxic assets, Treasury Secretary Timothy F. Geithner said, “The comp conditions will not apply to the asset managers and investors in the program.”
But Treasury lawyers have told the special inspector general for the federal bailout that executives involved with that initiative and another $1 trillion consumer lending program “could be subject to the executive compensation restrictions,” according to the report from Special Inspector General Neil M. Barofsky.
(Via the Corner.)
The Geithner plan isn’t even fleshed out yet, and it’s already dead. Healthy trading companies (the kind Geithner needs to participate) are never going to accept these limitations. Even if the Treasury backtracks, no one will trust them now. As the Economist notes:
Is it really that surprising? Banks were pressured to take TARP money last fall and were quickly dismayed when the government started calling the shots on pay and making it harder to hire foreign labour. Now they can’t give the money back.
If you’re against the bailout, the death of the Geithner plan could be a good thing. But if you’re for it, as President Obama presumably is, then this is a disaster. It’s a disaster that is the direct result of the irresponsible populist hysteria promulgated by the president’s party, and by the president himself.
The Democrats simply couldn’t help themselves. They had an opportunity to meddle in private business, to stick it to the rich, and they just couldn’t resist. They were warned of the consequences, but their ideology simply carried them away.
I’m undecided about whether the Geithner plan was a good idea, but I’m delighted by the teaching moment it’s given us. It’s not often that the law of unintended consequences comes into play so quickly, with the same people in charge, and with the issue still fresh in the public’s mind.
POSTSCRIPT: Once you might have thought that the trading companies could be reassured by appropriate legislation to protect them, but no longer. The AIG bonus confiscation fiasco saw to that. The law is no protection any more. Nothing short of a change in lawmakers will reassure them now.
UPDATE: Jennifer Rubin: “At this point any CEO who agrees to do business with the government should be fired.” (Via Instapundit.)
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