Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider...

To break this cycle, the government must force the banks to acknowledge the scale of their problems....

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Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

1. Br. Michael wrote: There is a system.  It’s called recievership. March 30, 10:14 am | [comment link]

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