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Geithner's inaction puts financial regulation onus on Obama

Let's be thankful that we live in a country that has been remarkably good-natured, generous and pragmatic in the face of a nasty economic crisis.

What really sticks in our craw, however, is that while most of the country is hunkered down, Wall Street continues to feast on a bounty of trading profits.

Fairly or unfairly, the official who has come to personify this let-them-eat-stuffing attitude is Treasury Secretary Tim Geithner, who can't seem to decide whose side of the buffet table he's really on. It was Geithner who, at the height of the financial crisis last year, best articulated the unpleasant truth that we could save the financial system or we could punish the banks, but we couldn't do both at the same time. Now that the system has been saved, he seems to have lost his appetite for retribution.

A telling moment came at the meeting of finance ministers in Scotland earlier this month, when Geithner gave a back-of-the-hand to the idea of a global tax on financial transactions as a way of raising money for economic stabilization while also discouraging high-volume, short-term speculation. In the past, if any country imposed such a tax, trading would simply move somewhere else. But with most industrial countries now willing to act in concert, a transaction tax had possibilities.

By itself, perhaps, the incident could have been written off as a difference of opinion about means rather than ends. But it seemed to be in accord with Geithner's determination to avoid upsetting markets or upending the Wall Street order.

This was the same Geithner, after all, who has pushed not only to preserve but expand the powers of a Federal Reserve that had been the regulatory hand-maiden of Wall Street banks and investment houses. It was Geithner and the Treasury that proposed to enshrine the doctrine of "too big to fail" into law, rejecting calls to break up the biggest banks.

And it has been Geithner who, for all his talk about reforming the structure of Wall Street pay, has never been able to bring himself to declare the simple truth that Wall Street pay is absurdly high.

It's fair to say that Geithner's credibility has been so tarnished in the eyes of Congress and the public that President Obama will now have to devote more personal attention to these issues.

Obama could start by instructing the Justice Department to launch an antitrust inquiry to determine why Wall Street continues to earn the extravagant profits from which the bonuses are derived.

The president could press Congress to close the tax loophole that allows managers of hedge funds and private-equity funds to pay lower tax rates than their secretaries.

And Obama could ask the Group of 20 to put the transaction tax back on the agenda, and vow to use the $50 billion a year in revenue that it would generate here to finance the much-needed transportation infrastructure improvements the president has proposed.

In truth, none of this will create the jobs the country desperately needs. But governing is as much about symbolism as it is substance. Only by taking steps to assure the nation that the economy will no longer be rigged in Wall Street's favor can the president regain the political high ground and push through a new jobs agenda.

Geithner's inaction puts financial regulation onus on Obama 11/29/09 [Last modified: Sunday, November 29, 2009 8:54pm]
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