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Obama's Bank Problem

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Despite many accomplishments during his first two months in office, President Obama hasn't persuaded the American public that he knows how to repair our troubled banks. There are striking parallels between the banking morass and the judicial quandary surrounding prisoners of war. Studying these quite different problems clarifies how we got here and what Obama should do.

1. The system was broken: The chaotic initial days of the "war" on terror led to housing prisoners of war at Guantanamo Bay, Cuba, and Bagram, Afghanistan. The Bush Administration didn't think through the full legal consequences of their handling of these detainees, many of who were guilty of nothing more than being in the wrong place at the wrong time.

Tumultuous circumstances led to last autumn's bank bailout. After the unexpected bankruptcy of Lehman Brothers and the cataclysmic affect on financial markets, President Bush and his Treasury Secretary, Henry Paulson, panicked and began throwing money at banks.

2. There was no repair plan: The Bush Administration failed to develop a strategy to address these problems. Detainees were designated "enemy combatants," denied due process, and, in many cases, tortured. The Bush White House argued these prisoners of war should not go through the traditional American legal process but instead be handled by special military tribunals and detained indefinitely as long as the "war" on terror continued.

Treasury Secretary Paulson gave banks billions of dollars without putting a process in place that guaranteed they used these funds wisely. He relied upon the good will of bank executives to ensure they would use the funds to extend credit to businesses and individuals. Instead, the banks held onto the bailout money; many used it to buy other banks or give executives lavish bonuses.

3. The Obama Administration inherited a mess: George Bush bequeathed these septic problems to Barack Obama. A typical quandary is the case of Khalid Sheikh Mohammed an Al Qaeda leader captured in Pakistan in 2003, held in secret prisons, and moved to Guantanamo Bay in 2006. Mohammed was tortured and, for most of his detention, denied due process. Last December, Mohammed pled guilty so he could be executed as a martyr.

Although Congress passed the "Emergency Economic Stabilization Act" in October, it did not ease the credit crisis. By the time Obama became President, support for the banking bailout had deteriorated. Recent polls show the public is opposed to "giving aid to US banks and financial companies in danger of failing."

4. The Obama Administration is understaffed: Solving these two problems requires experienced government officials. For example, Khalid Sheikh Mohammed has confessed to planning the 9/11 attacks and other terrorist outrages yet, because he's been mistreated, if he were to be processed through normal court proceedings, most or all charges would be dismissed. Resolution of Mohammed's case will require the attention of several senior Justice Department lawyers. Therefore, disposition of the 245 prisoners held at Guantanamo and the 630 detained at Bagram will require more than a thousand Federal attorneys.

In a recent 60 Minutes interview, Federal Reserve Chair Ben Bernanke pledged to not let US banks fail and added, "But what we can do, should it be necessary, is try to wind [a failed bank] down in a safe way." Fixing the nation's big banks "winding them down" will require the attention of hundreds of senior Treasury Department employees. Unfortunately, staffing the Treasury Department is proceeding at snail's pace. One of the reasons the Obama Administration has not "nationalized" banks such as Bank of America, Citibank, and Wells Fargo is that they do not have the talent available to be able to manage these mammoth organizations.

5. The resolution of these problems will take time: Although the public and Congress are clamoring for resolution of the prisoner of war and banking problems, this isn't going to happen soon. Both predicaments were caused by Bush Administration mismanagement; their policies caused the difficulties and their ineptitude worsened the situation.

Besides taking responsibility to fix these messes, President Obama must ask Americans to be patient; solving both problems will take time and the application of experienced Federal personnel. He needs to explain his plan and then execute it. We're fortunate that our current President has the intelligence, judgment, and patience required to resolve these predicaments.

 

Bob Burnett is a Berkeley writer. In a previous life he was one of the executive founders of Cisco Systems.

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that Obama "doesn't know how" to fix... by Richard Mynick on Friday, Mar 20, 2009 at 3:57:38 PM
As the chart and info below show...this is somethi... by William Whitten on Sunday, Mar 22, 2009 at 10:55:54 AM
This is a staggering devaluation of the US currenc... by William Whitten on Sunday, Mar 22, 2009 at 10:45:21 AM