Resolution Finance Corp. Redux

The President is trying to put out this AIG fire that laps at his broader agenda.

Obama just took questions from reporters, and made a major bid to take control of this story. He placed responsibility for the fiasco squarely on his own shoulders, uncorked a populist blast against “greed” on Wall Street and strongly implied that Republicans blasting the big bonuses are hypocrites.

Asked if he wished he’d known about the bonuses sooner, Obama said, in the course of answering: “Ultimately, I’m responsible. I’m the President of the United States…The buck stops with me.”

“My goal is to make sure that we never put ourselves in this kind of position again,” he said, adding that the AIG story was “consuming” the public, and “rightfully so.”

Obama also moved to acknowledge public anger about the AIG saga, but said that the proper response was to place the AIG story in a larger context.

“People are right to be angry,” he said. “I’m angry. What I want us to do, though, is channel our anger in a constructive way.” Obama touted his plan for a “resolution authority” that would have power over financial firms similar to the FDIC’s over banks, and promised to “fast track” it with Congress.

The "resolution authority" could be similar to the Resolution Finance Corporation created by Roosevelt during the Depression. I think he needs to offer more information about that, because that model seems like it could work:

Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.

Clearly this would be met with outcry from Republican leaders as well as pliant hem-sniffers to the elites. The imagery of pitchforks gets used by those defending AIG to characterize the public as a mob. But a Resolution Finance Corporation charged with overseeing the winding down of insolvent companies wholly dependent on taxpayer funding would be pitchfork-free. In fact, reducing salaries and ending the bonus culture on Wall Street PRESERVES the Obama agenda, rather than wreck it for the future, as Ruth Marcus seems to be saying.

Rather than piecemeal tax provisions targeted at individual firms (though they are politically inevitable in this case), I support a wider net to deal with resolved companies. It would calm the roiling waters in the country, if explained well.