STEVE INSKEEP, host:
That's also the opinion of the man we'll hear from next. So much money is flowing in so many government plans, that we're going to spend the next few days trying to sort it out. We're calling experts and asking a few simple questions: what's working, what's not, and what's next?
We begin this morning with Douglas Holtz-Eakin. He once advised President Bush, and now talks with senators in both parties.
What's one thing that you think is working?
Mr. DOUGLAS HOLTZ-EAKIN (Former Adviser to President Bush): Well, I think the Fed is doing a great job. The Fed has moved from a reactive policy, where they sort of stepped in 'cause they had to -with Bear Stearns and AIG - to a very proactive policy that's aggressive and is pumping money into the economy at a time when it really needs it. So, that's the brightest piece of the landscape.
INSKEEP: And you were impressed when the Fed put more than a trillion dollars into the economy even though initially, the stock market seemed a little concerned about that?
Mr. HOLTZ-EAKIN: I think that the lessons of other countries dealing with these kinds of situations says that you have aggressive monetary policy, and so I approve what they're up to.
INSKEEP: What is not working - what's one thing, anyway?
Mr. HOLTZ-EAKIN: The financial-bailout effort, the TARP financial stability plan, I think, is the really, most pressing concern in the economy. Without restructuring the financial system, we're not going to come out of this in any kind of a reasonable way. And the actions of the Congress with AIG are just appalling. The notion that they will now get the private-sector capital to come in and help restore financial stability when they change the rules every day and attack the people they're trying to help - it's just not going to happen.
INSKEEP: You touched on a couple of things that I want to make sure we're clear on. There have been so many bailouts; let's make sure we're talking about the right one. The financial bailout: This is the thing that began in September under the Bush administration, started with 700 billion then; there's talk of increasing it now. And this is the effort to stabilize the financial system.
But you're saying you want to do more than stabilize the financial system. You said there needs to be a restructuring of the financial system. How is that different from what's being done?
Mr. HOLTZ-EAKIN: I think they go hand-in-hand. To really get financial stability, we have to acknowledge that some of these institutions have failed -for example, AIG has failed - and move past simply keeping them upright, pumping money in to do it, to winding them down in an orderly fashion, selling off their assets to new institutions that have a chance to make a profit in the future. That's the only way we will effectively clean out the bad assets in the system.
INSKEEP: Well, the reason that has not been done - the reason given, anyway - is that if you let a company like AIG fail, then it causes a disastrous failure of any number of other companies that were otherwise healthy. Is that not the case?
Mr. HOLTZ-EAKIN: The question, is how do you wind them down? You certainly don't want to repeat the Lehman Brothers experience, where you simply let them go to bankruptcy and fail overnight. You want to sell off their assets in an orderly fashion and as you do it, you do have to have taxpayer money in there to make sure the creditors are not damaged and you don't get a lot of collateral fallout in the economy.
It shouldn't be keeping failed institutions alive; it should be insulating others from the consequences of their failure.
INSKEEP: People may need some explanation of that, because everybody's heard of the Federal Deposit Insurance Corporation. Don't they have the power to go in, grab a bank, shut it down, pay off the depositors, and go on its way?
Mr. HOLTZ-EAKIN: They have the ability to go into a bank. They do not have the authority to go into a bank holding company, a large…
INSKEEP: Like Citigroup, which owns a ton of banks.
Mr. HOLTZ-EAKIN: Yeah, which owns things everywhere all around the world, and in different legal formats in the U.S. We don't have that authority. That's what's missing.
INSKEEP: Are you suggesting, Douglas Holtz-Eakin, that even though the federal government has passed this financial bailout - has committed hundreds of billions of dollars, there have been huge headlines - are you suggesting that we're actually in denial about the problem?
Mr. HOLTZ-EAKIN: It's not a matter of money, it's what you do with the money. And I think we should be more aggressive about using the taxpayers' money to insulate people from the consequences of failures of financial firms, but allowing failures of financial firms. The ones that are truly insolvent need to be wound down, not preserved.
INSKEEP: One other thing does occur to me: When you look across the country and indeed, around the world, do you see one more major economic development, whether good or bad, that this administration and the rest of us are going to have to deal with?
Mr. HOLTZ-EAKIN: I'm very concerned about the rising protectionism. We saw, on the part of the United States, buy-America provisions in the stimulus bill and in subsequent legislation. This is practically the playbook for what you do wrong in a global recession, and we've got to cut this off.
INSKEEP: Douglas Holtz-Eakin was an adviser to President Bush, then to John McCain. Thanks very much.
Mr. HOLTZ-EAKIN: Thank you.
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