With Bank of America joining Goldman Sachs and JP Morgan in posting huge profits I think we can see that the administration’s banking strategy, whether you like it or not, is actually working. One school of thought said that insolvent banks should just be allowed to fail and go into bankruptcy. Another school of thought said that insolvent banks should be seized by the government, recapitalized by the state, and then reprivatized. The administration’s view was that the first approach was irresponsible and the second unnecessary. Rather than seeking congressional authority for vast new spending on recapitalization and pissing off wealthy financiers by seizing banks and firing people, they took the view that a strategy of regulatory forebearance and loose monetary policy would let the banks recapitalize themselves through profits.
And it seems to be working. It’s crucial to understand that TARP is not the only government help banks have received and that even firms who’ve “paid back” the money are still, in fact, getting large explicit and implicit assistance from the government.
But of course this still leaves us with the social justice outrage that hundreds of millions of Americans seem fated to live our lives as helpless victims of the ups-and-downs of the gambling fortunes of multi-millionaire bankers. The bankers themselves, meanwhile, get to privatize all the profits and socialize many of the losses. This is something that I think desperately needs to be brought back into the tax and health care debate. When we talk about surtaxes on the wealthy to finance health care expansion for the poor and the middle class, these are the people we’re talking about taxing.