Set Up A Meeting With France, Mr. President

By now, Barack Obama has probably landed in London on the eve of the G20 summit, his first international conference as President. He has vowed to participate as a listener rather than just dictating terms. He should sit down with Nicolas Sarkozy:

Responding to a popular outcry, the French government issued a decree Monday banning stock options and limiting bonuses for bankers or auto executives who lay off workers after accepting government aid to weather the economic crisis.

Prime Minister François Fillon, announcing the measures, said France was the first European country to lay down such legal restrictions on executive pay. Although not retroactive, they will run through 2010, he said in a statement, and they could be extended.

"There is no question of some people escaping from the consequences of the crisis while others suffer unemployment or pay cuts," he added, pledging to monitor compliance with the decree carefully because "it is a question of justice."

Banks and auto companies were singled out because they have received extensive aid since the financial crisis broke out in September, leading to economic turmoil across the globe. President Nicolas Sarkozy allocated $14 billion in October to prevent France's six main banks from sinking and loaned $8 billion under favorable terms to the country's three main car companies.

I mean, this is almost a parallel situation. Societe Generale, one of the largest French banks, was a major AIG counter-party, and two weeks ago they admitted the granting of huge stock options to their executives. After public outrage, the French government, under duress, made the changes. And the Left in France remains dissatisfied.

The Socialist Party, France's main opposition group, criticized the decree as "perfectly insufficient," saying the ban should be retroactive and extend beyond banks and auto companies. In a statement, the party charged that Fillon chose to issue a decree instead of passing a law because he was afraid of a parliamentary debate on the government's efforts to address the crisis.

That is how an oppositional movement works. In America we have a few lonely cries in the wilderness, and Elizabeth Warren has been courageous in trying to get some accountability from the Treasury Department (alas, they have been stiffing her at every opportunity). But by and large most political leaders that would be seen as "on the Left" are supporting the Geithner plan, and the fury over the AIG bonuses has petered out. And people who should be giving out all their money on the street under threat of prison like Hank Paulson can whine about not getting more "credit" for saving the economy, and nobody bats an eyelash.

I know the political dynamic is easier in France, with the party on the left in opposition to the ruling party. Democrats are wary of criticizing Obama over the bank bailouts. But they must speak. We are at risk of >slipping into a Japanification (h/t Krugman), where we never do what's necessary to rescue the banks, and we slide along with zero growth and tied-up financial markets for a decade. Delay simply makes this problem worse, and makes the inevitable takeover and restructuring more expensive.

There is at least a possibility we can get out of this all right, if the PPIP becomes a prelude to determining solvency and nationalization. Perhaps the Congress needs to grant Treasury additional resolution authority to wind down units like AIG and nonbank financial institutions. But at the very least, the Administration can respond to public anger, as the political environment has shifted. People are not blaming the President for the economy right now, but at some point that will end. I appreciate their movement on many other fronts. But we have to rip off the band-aid and take the necessary steps to recapitalize the banks and ultimately tamp down the financial sector as a share of the overall economy.