Save the banks? Yes. Save your federal benefits? No.
The irony must have been lost on him.
Neel Kashkari, the first head of the government’s $700-billion financial-system bailout program (TARP), argues that Congress needs to bring the same urgency to cutting federal entitlement benefits that it did to bailing out banks -- because they’re both “the right thing to do” for the national good.
Kashkari, a former assistant U.S. Treasury secretary (and Goldman Sachs alum) who directed the Troubled Asset Relief Program from its inception in the fall of 2008 until May 2009, wrote a Washington Post op-ed piece on Monday entitled, “No more 'me first' mentality on entitlements.”
First, here's how he lauds TARP:
While it does not happen often, our political system is capable of making unpopular decisions that are in our collective best interest. In 2008, during the most severe financial crisis in 80 years, Republican and Democratic leaders in Washington came together to do something deeply unpopular: bail out the financial system via the Troubled Assets Relief Program. These leaders understood the consequence of inaction was economic devastation for Americans. Passing TARP was the right thing to do.
So, going deeper into debt (at least temporarily) to save the banks was in our national interest, he’s saying. But now, Kashkari -- who was hired last year to direct a new-investments unit at bond fund giant Pimco in Newport Beach -- says that cutting entitlements to reduce the federal debt burden is the imperative.
Unless we control our deficits we will face stifled economic growth and impaired standards of living, perhaps even as soon as a few years from now. Most economists agree that raising taxes cannot pay for these commitments; entitlements must be cut.
Cutting entitlement spending requires us to think beyond what is in our own immediate self-interest. But it also runs against our sense of fairness: We have, after all, paid for entitlements for earlier generations. Is it now fair to cut my benefits? No, it isn't. But if we don't focus on our collective good, all of us will suffer.
Well, Pimco obviously could suffer if the government’s soaring debt load eventually drives market interest rates higher -- devaluing outstanding bonds that pay lower rates.
Kashkari offers no ideas as to which entitlement programs to cut (Social Security? Medicare? Food stamps?). He also says that reaching a consensus on cuts will first require that the economy generates decent enough job growth to make Americans feel “economically secure.” (As if that’s going to happen anytime soon.)
No doubt Kashkari feels that he can praise TARP because the government has gotten back most of the money it sank into the banks. As for entitlement spending, most Americans probably would agree that we can’t afford some chunk of what has been promised.
But having the former head of the bank-bailout program now arguing for social-spending cuts is just baiting an already angry public. Kashkari's simplistic "TARP good, entitlements bad" theme isn't going to play well anywhere other than Wall Street.
-- Tom Petruno
Photo: Neel Kashkari. Credit: Haraz N. Ghanbari / Associated Press