Former managing director of Soros Fund Management on Bill Moyers

Bill Moyers Journal this week featured yet another superbly qualified economist, Robert Johnson — former managing director of Soros Fund Management, former managing director of Bankers Trust, former Chief Economist of the US Senate Banking Committee, and former Senior Economist of the U.S. Senate Budget Committee — making a strong case that we need to close down and restructure our largest banks rather than continue shoveling them money and letting them live as continuing entities under current management and ownership.

Johnson terms the Obama/Summers/Geithner approach “intravenous drip capitalization… Meaning: don’t realize the losses on the balance sheet now. Don’t account for everything in a prompt way. Don’t truncate the losses, but allow them to go on… The capital assistance program is warehousing zombie banks and running the risk [that] the taxpayer, over the next one or two years, will experience much larger losses.”

Here’s an excerpt:

Financiers used to say, with all of their academic consultants, and everything else, “You can leave us alone, and we’ll create flexibility and prosperity. Trust us.” And then, when they got in trouble, they say, “You have to bail us out, because if you don’t, your hostage in society goes down with us.” Which is kind of what’s happening right now.

We had 25 years of excessive risk taking with people like Alan Greenspan and everybody else underwriting by rescuing each crisis. Robert Rubin and Larry Summers rescuing from the Mexican crisis, the Long-Term Capital Management deal, which didn’t involve taxpayers' money but it involved public officials organizing it. But you kept anaesthetizing the fear of loss on the part of financiers, and they built the bubble bigger and bigger and bigger. And now they need the bailout. We made a mess of regulation in the old days because we acted like they would never do something that took excessive risk. And they did do things that took excessive risk.

You can watch or download the video or read the transcript.

Posted by James on Monday, March 02, 2009