WASHINGTON (CNN) -- This week, the Obama administration launched an angry campaign (and rightly so) targeting the greed of the financial services industry.
The big bank executives -- with their French private aircraft purchases, Las Vegas boondoggles and multibillion-dollar bonuses (despite having just received taxpayer bailout funding) -- appear politically tone deaf. Now the Treasury Department is proposing a $500,000 salary cap on senior executives of banks receiving taxpayer funding.
But here's how Washington really works. The reason for Obama's public campaign is that soon officials are likely to hand the banks a taxpayer-funded bailout potentially worth trillions of dollars. Therefore, what's happening here is the creation of old-fashioned political cover.
The administration needs this cover because it faces a horrible choice. At issue is how the Treasury arrives at a price for the banks' toxic assets in any bailout package that entails taxpayer funding.
Here's the catch: If officials value the toxic assets at too low a price, all bank stocks will collapse. The world then would declare the large U.S. banks insolvent. America would face financial Armageddon.
On the other hand, valuing the toxic assets at an artificially high price (at the taxpayers' expense) may save the banks but invites a political firestorm at a time when average folks are hurting. Thus the need for cover. - CNN Story
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