By Simon Johnson
The campaign to convince people that Treasury is serious about banking reform – led sometimes by President Obama – suffered a major blow today on Capitol Hill. In testimony to the Congressional Oversight Panel, Assistant Secretary for Financial Stability “and Counselor to the Secretary” Herb Allison said, “There is no too big to fail guarantee on the part of the U.S. government.”
This statement is so extraordinarily at odds with the facts that it takes your breath away.
Should we laugh at the barefaced misrepresentation of what this administration has done (and the Bush team did) – or just dig out “Too Big To Fail” by Andrew Ross Sorkin and go through all the gruesome details again? Should we cry for what this implies about Secretary Geithner’s commitment to real reform – if there is no issue with “too big to fail”, then why do you need any new laws that try to address this issue (e.g., such as the Volcker Rules, sent to Congress this week)?
The temptation is to shrug and ignore repeated such insults to our intelligence and implied injury to our pocketbooks. But this would be a mistake.
I want an answer to this question: Who authorized Mr. Allison to make this statement, and what were they thinking?
If Mr. Allison was free-lancing, we should discuss the consequences. If Mr. Allison was sticking to his talking points, as seems likely, let us find out exactly who is responsible for sharing arrant and self-defeating nonsense with Congress. The disrespect for our legislature and cynicism for mainstream opinion here is beyond what is tolerable or responsible.
The Obama administration has dealt itself another formidable blow.