When Will The Bailouts End?

Elizabeth Warren only holds a watchdog job, and one without much power, but she's the first government official, such that it is, to call for the firing of top bank CEOs.

Elizabeth Warren, chief watchdog of America's $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

Strangely, Treasury Secretary Tim Geithner agreed that firing CEOs that received TARP money was a possibility, though I agree with Robert Reich that there was a fairly transparent motive to his words.

I suppose it's comforting to know our government stands ready to fire corporate executives and directors whenever taxpayer money is on the line. But I suspect Geithner's new tough line is mostly designed to reassure a public that's lost all faith in the wisdom of bailing out Wall Street.

For the sake of the argument, assume he's sincere. What criterion will an axe-wielding Geithner be using? If precipitous loss of shareholder value is enough to "require a change in management and the board," presumably every CEO and director of every big bank now being bailed out should be fired, starting with Ken Lewis of Bank of America.

If the criterion is diversion of taxpayer money to uses other than Congress intended when it first authorized the $700 billion bailout, the list of soon-to-be-fired CEOs is a bit shorter but still large. Surely it includes all the bailed-out banks that continue to fly their executives around the world in company jets, award them extraordinary pay packages, and run junkets at fancy resorts. Citigroup's Vikram Pandit (who collected $38.2 million for his taxpayer-subsidized services in 2008) comes immediately to mind.

You can make the argument right now about firing these guys. Somehow I'm not feeling Geithner's vow to get around to it. But that's actually a smaller point; Warren was criticizing the approach of giving away trillions of dollars to financial firms without consequences or even so much as a haircut for sharehodlers and bondholders. That's the subject on which I would like to see Geithner comment. We already learned today that the bailout will cost $167 billion more than expected. How much is enough?