Few presidents get a second honeymoon of their own making. (George W. got one when terrorists attacked the United States.) Barack Obama’s victory on health care reform has breathed new life into his administration, recharged the Democratic base, and given the rest of America a sense of someone who fights for average working people.
 
The question now is: What does he do with his second honeymoon?
 
Some say it should be used to enact financial reform. Most Americans despise Wall Street and want to be assured there’s no repeat of the grotesque sequence of river-boat gambling with the economy followed by a taxpayer bailout followed by seven-and eight-figure bonuses. Democratic strategists would love to let Republicans hoist themselves on their own petard by defending Wall Street.
 
Financial reform surely needs bucking up. The bill passed by the House last year was riddled with loopholes, delays, and cop-outs for the Street. The one that’s emerging from the Senate Banking Committee is only slightly better. It still allows a world of unregulated derivative trading and hands the ball over to the same regulators that punted last time. It doesn’t even include Paul Volcker’s watered-down remake of the Glass-Steagall Act. And the Senate bill is likely to get even worse as Harry Reid and Chris Dodd troll for Republican support. In an election year when Wall Street money is flowing freely to both parties, watch your wallets.
 
Notwithstanding all this, the biggest Next Big Thing ought to be jobs.

Including all those who have entered the job market since the bottom fell out, the nation is about 11 million jobs short. The President ought to use his second honeymoon to get a jobs bill that will make a difference.
 
Although the official rate of unemployment for the third of Americans with college degrees – the kind of people who inhabit executive suites, the media, and Washington – is now down to 5 percent, most Americas inhabit a different job planet. The unemployment rate is 15.6 percent among Americans with less than a high school diploma and 10.5 percent for those with only a high school degree.
 
Even these rates understate the problem. Add in people working part time who’d rather it be full time, those too discouraged even to look for work, those working in a full-time job at fewer hours, and those who lost their jobs and have settled on new ones paying far less, and more than one in four of those without high school degrees are unemployed or underemployed; 22 percent of people with only high school degrees.
 
Considering that most households now rely on two wage earners (and most people tend to marry or cohabit with people who have roughly the same level of education they do) the situation is dire. A growing number of households have now sold off all their assets and exhausted their capacity to borrow from friends and relatives. That’s why the bad loans are still mounting: Households can’t meet their mortgage payments, can’t pay the rent, can’t meet payments on their credit cards and cars.
 
It doesn’t have to be this way. It’s this way because companies and consumers aren’t able or willing to buy nearly enough to get people back to work, and government hasn’t yet filled the shortfall. The stimulus was too small to begin with and its peak level of spending is now over.
 
In recent weeks, Congress and the Administration have been working on a bunch of proposals called “jobs bills,” but they’re so small relative to the size of the problem they should be called “almost jobs bills.”

One, recently passed, lets employers avoid paying payroll taxes for the rest of the year on each unemployed worker they hire (at a salary under $106,800), who has been out of work for at least 60 days. If the new hire remains at the job for at least 52 weeks, the employer can get a $1,000 tax credit on its 2011 tax return. The Congressional Budget Office estimated a similar payroll tax holiday proposal – not limited to workers who had been jobless for 60 days – would generate about 200,000 new jobs. With the 60-day limit, though, the number of hires is likely to be half that. Remember: The nation needs 11 million jobs just to catch up.
 
On Wednesday, House Democrats passed several other morsels they called “jobs bills,” whose likely effect on unemployment is even smaller. One would bestow about $3 billion of tax breaks on small businesses. Another would further expand what are known as “Build America Bonds,” designed to help states and cities with new construction projects. The tab here is about $13 billion. It’s a worthwhile effort but given that the states and cities are running up deficits of some $125 billion this year alone and firing everyone in sight – even teachers – it’s smaller than small potatoes. It’s a lima bean.

On Friday, the White House will announce a new program requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, to no more than 31 percent of a borrower’s income (about what the borrower would be getting in unemployment benefits, if qualified), for up to six months. It’s another worthwhile step. But it deals with the symptom rather than the disease. The reason so many households can’t pay their mortgage is because someone has lost a job.
 
There is no great mystery about what the federal government needs to do. It must mount a frontal attack on unemployment proportional to the problem. At least another $300 billion in stimulus money is necessary. Some should go to the states and cities to restore cuts; some should be applied to the nation’s crumbling  infrastructure; a portion should go to direct hiring (a new WPA).
 
This should be the Next Big Thing.

It won’t be easy. Most Americans don’t differentiate between temporary federal spending that’s necessary to get jobs back (which enlarges the current deficit) and permanent spending that’s built into federal programs (and creates big debt problems for the future). Many “moderate” Dems won’t even consider a second stimulus.

To accomplish it will require the President draw on his new store of political capital, mobilize his newly fired-up base, and capitalize on his renewed stature as a fighter for the people. But what’s a second honeymoon for if not for something the nation desperately needs?

It’s not nearly as momentous as the passage of Medicare in 1965 and won’t fundamentally alter how Americans think about social safety nets. But the likely passage of Obama’s health care reform bill is the biggest thing Congress has done in decades, and has enormous political significance for the future.

Medicare directly changed the life of every senior in America, giving them health security and dramatically reducing their rates of poverty. By contrast, most Americans won’t be affected by Obama’s health care legislation. Most of us will continue to receive health insurance through our employers. (Only a comparatively small minority will be required to buy insurance who don’t want it, or be subsidized in order to afford it. Only a relatively few companies will be required to provide it who don’t now.)

Medicare built on Franklin D. Roosevelt’s New Deal notion of government as insurer, with citizens making payments to government, and government paying out benefits. That was the central idea of Social Security, and Medicare piggybacked on Social Security.

Obama’s legislation comes from an alternative idea, begun under the Eisenhower administration and developed under Nixon, of a market for health care based on private insurers and employers.  Eisenhower locked in the tax break for employee health benefits; Nixon pushed prepaid, competing health plans, and urged a requirement that employers cover their employees. Obama applies Nixon’s idea and takes it a step further by requiring all Americans to carry health insurance, and giving subsidies to those who need it.

So don’t believe anyone who says Obama’s health care legislation marks a swing of the pendulum back toward the Great Society and the New Deal. Obama’s health bill is a very conservative piece of legislation, building on a Republican rather than a New Deal foundation. The New Deal foundation would have offered Medicare to all Americans or, at the very least, featured a public insurance option.

The significance of Obama’s health legislation is more political than substantive. For the first time since Ronald Reagan told America government is the problem, Obama’s health bill reasserts that government can provide a major solution. In political terms, that’s a very big deal.

Most Americans continue to be suspicious of government. That distrust is deeply etched in our culture and traditions. Our system of government was devised by people who distrusted government and intentionally created checks and balances, three separate branches, and almost insuperable odds against getting big things done. The period extending from 1933 to 1965 — the New Deal and the Great Society — was an historical aberration from that long tradition, animated by the unique crises of the Great Depression and World War II, and the social cohesion that flowed from them for another generation. Ronald Reagan merely picked up where Calvin Coolidge and Herbert Hoover left off.

But Reagan’s view of government as the problem is increasingly at odds with a nation whose system of health care relies on large for-profit entities designed to make money rather than improve health; whose economy is dependent on global capital and on global corporations and financial institutions with no particular loyalty to America; and much of whose fuel comes from unstable and dangerous areas of the world. Under these conditions, government is the only entity that can look out for our interests.

We will not return to the New Deal or the Great Society, but nor will we continue to wallow in the increasingly obsolete Reagan view that we don’t need a strong and competent government. Today’s vote confirms our hope that we can have both strength and competence in Washington. It is an audacious hope, but we have no choice.

Any day now, the Obama administration will announce $4.35 billion in extra federal funds for under-performing public schools. That’s fine, but relative to the financial squeeze all the nation’s public schools now face it’s a cruel joke.

The recession has ravaged state and local budgets, most of which aren’t allowed to run deficits. That’s meant major cuts in public schools and universities, and a giant future deficit in the education of our people.

Across America, schools are laying off thousands of teachers. Classrooms that had contained 20 to 25 students are now crammed with 30 or more. School years have been shortened. Some school districts are moving to four-day school weeks. After-school programs have been cancelled; music and art classes, terminated. Even history is being chucked.

Pre-K programs have been shut down. Community colleges are reducing their course offerings and admitting fewer students. Public universities, like the one I teach at, have raised tuitions and fees. That means many qualified students won’t be attending.

Last year the nation committed $700 billion to bail out Wall Street banks, the engines of America’s financial capital, because we were told we’d face economic Armegeddon if we didn’t.

We’ve got our priorities backwards. Our schools are the engines of our human capital, and if we don’t bail out public education we face a bigger economic Armegeddon years from now.

Financial capital moves instantly around the globe to wherever it can earn the best return. Human capital – the skills and insights of our people – is the one resource that’s uniquely American, on which our future living standards uniquely depend.

Starting immediately, the federal government should give states and local governments interest-free loans to make up for all school and university budget shortfalls. The loans can be repaid when the recession is over and local and state tax revenues revive.

Over the longer term we must shift incentives away from financial capital toward human capital. A tiny one half of one percent tax on all financial transactions would generate about $200 billion a year, according to the Economic Policy Institute. That might put a crimp on Wall Street bonuses but it’s enough to fund early childhood education, smaller K-12 classes, and lower tuitons and fees for public higher education.

The Street’s financial capital is important to the American economy, but over the long term the classroom’s human capital is absolutely crucial.

The President wants businesses that hire new employees this year to get $5,000 per hire, in the form of a tax credit. That will come to about $33 billion. It’s good step. He’s also supporting a cut in the capital gains tax for small businesses. That makes sense; after all, small businesses generate most jobs.

But here’s the problem. Both of these measures, and many of the other tax cuts he’s proposing, give ammunition to supply-siders who think the way out of this awful economy is simply to cut taxes on businesses. If a new jobs tax credit is a good idea, why not a cut corporate in income taxes? If it’s useful to reduce capital gains taxes for small businesses, why isn’t it useful to reduce them for all businesses?

The answer, of course, is that across-the-board supply-side tax cuts for businesses don’t increase the demand for the things businesses produce. They’re useful only to the extent businesses are confident consumers are out there, able and willing to buy. Carefully targeted — as are the cuts the President is proposing — they can give businesses an extra nudge to hire. But without adequate demand, they’re useless.

So what’s the President’s new proposal for boosting overall demand? Hmmm. Turns out, he’s not really proposing anything new on that score. (Some who watched his State of the Union the other night thought they heard him call for a second stimulus. Actually, he didn’t, and as far as I can tell he doesn’t plan to.) His political advisors are telling him to emphasize deficit reduction instead. And that’s what he did Wednesday night when he talked about a “freeze” on discretionary spending, and a “commission” to look for ways to cut the deficit.

I can understand why Obama’s political advisors are pushing him in this direction. Many Americans borrowed too much during the boom years before the Great Depression, and now they’re paying the price. So they naturally analogize their own plight to that of the federal government and the economy as a whole. The government is too deep in debt, they reason. Logically, that means the only way out of the nation’s economic doldrums is for the government to mend its ways. The government has to reduce its budget deficit just like American families have to reduce theirs.

This analogy is faulty, of course. If John Maynard Keyenes taught us anything, it’s that a federal budget is not at all like a family budget. In fact, it’s precisely because families have to pull in their belts that the federal government has to let its belt out. When consumers and businesses aren’t buying much of anything, the government has to fill the gap. That’s the only way to get jobs and get the economy moving again. Once the economy is percolating, the government can pull back. By then, tax revenues will soar, and the long-term deficit will shrink. (And yes, entitlement reform is probably necessary in the long term. But here again, it’s vitally important to separate the long term from the now.)

But if the public learns the wrong set of lessons — that tax cuts for businesses are good, and deficit reduction starting now is good — there’s no hope for getting wise policies out of Congress. The debate is framed all wrong.

The President — any president — is the nation’s educator in chief. Everything he proposes contains an implicit lesson. The economic lesson President Obama ought to be teaching is that targeted tax cuts, mostly for small business, are good to the extent they give businesses a nudge toward creating more jobs. But businesses won’t begin to create lots of jobs until they have lots of customers. And that won’t happen until lots more Americans have work. The only way to get them work when businesses aren’t hiring is for government to prime the pump.

One final lesson I wish he’d teach: The best and fastest way for government to prime the pump is to help states and locales, which are now doing the opposite. They’re laying off teachers, police officers, social workers, health-care workers, and many more who provide vital public services. And they’re increasing taxes and fees. They have no choice. State constititions require them to balance their budgets. But the result is to negate much of what the federal government has tried to do with its stimulus to date.

We need a second stimulus directed at states and locales. I wish our educator-in-chief would say that loud and clear, explain why, and then do it.

A third political party is emerging in America. Call it the I’m-Mad-As-Hell party.

It’s a mistake to see the Mad-As-Hell party as just a right-wing phenomenon – the so-called Tea Partiers now storming the gates of the Republican Party. There are plenty of mad-as-hellers on the left as well – furious at Wall Street, health insurers, pharmaceutical manufacturers, and establishment Democrats.

Mad-as-hellers don’t trust big government. But they don’t trust big business and Wall Street, either. They especially hate it when big government gets together with big business and Wall Street – while at the same time Main Street is in shambles and millions of people are losing their jobs and homes. 

First it was TARP, the giant bank bailout that seems to have made Wall Street flush again — so flush the Street is now distributing giant bonuses as if the crash it brought on never happened.

Then came the stimulus package, replete with earmarked goodies for every corporation big enough to hire a team of Washington lobbyists.

And then it was health care, which to some people looked like a sweetheart deal between government and Big Pharma and big health insurers.

To the Mad-As-Hell party, the biggest event last week wasn’t Scott Brown’s upset victory in Massachusetts. It was the Supreme Court’s decision in Citizen’s United vs. the Federal Election Commission, allowing corporations to spend however much they want on political campaigns. True mad-as-hellers see this as inviting even more collusion between big business, Wall Street, and big government – and against the rest of us.

With the mid-term elections months away, both Republicans and Democrats are scrambling to embrace the Mad-As-Hell Party as their own. Republicans are hoping the mad-as-hellers forget the gushing corporate welfare of the Bush administration and the last Republican congress. And Democrats have become born-again economic populists, blaming the nation’s problems on the same “fat cat” bankers and corporate lobbyists they’ve been cozying up to for years.

If the Mad-as-hell Party helps get money out of politics it will do a world of good. I might even join up. But if it just fulminates against the establishment, forget it. Wrecking balls are easy to wield. Rescuing our democracy is hard work.

In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: “This sucker could go down.” Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that “if we do not do this, the trauma, the chaos and the disruption to everyday Americans’ lives will be overwhelming, and that’s a price we can’t afford to risk paying.”

In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people’s money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street’s exuberance.

But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.

It is commonplace among policymakers to fervently and sincerely believe that Wall Street’s financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.

Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.

It’s easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.

But if 2009 has proved anything, it’s that the bailout of Wall Street didn’t trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can’t get credit. And people everywhere, it seems, are worried about losing their jobs. Wall Street is the only place where money is flowing and pay is escalating. Top executives and traders on the Street will soon be splitting about $25 billion in bonuses (despite Goldman Sachs’ decision, made with an eye toward public relations, to defer bonuses for its 30 top players).

The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That’s because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.

President Obama and his economic team have been telling Americans we’ll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to “rebalance” global financial flows. China has saved too much and consumed too little, while we have done the reverse.

In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up — had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share — most Americans would not have felt the necessity to borrow so much.

The year 2009 will be remembered as the year when Main Street got hit hard. Don’t expect 2010 to be much better — that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we’ll be in a recovery. I hope they’re right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won’t have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can’t get out of the doldrums.

As long as income and wealth keep concentrating at the top, and the great divide between America’s have-mores and have-lesses continues to widen, the Great Recession won’t end — at least not in the real economy.

How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise.

In the old-fashioned kind of recession decades ago, big companies laid off people with the expectation of rehiring them when the economy turned up. Then a few recessions back, companies started laying off people for good, never rehiring them even when the economy recovered.

In the Great Recession of 2008-2009, companies are going a step further. They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they’re doing whatever it takes to get payrolls down so earnings bounce up.

Caterpillar earned $404 million in the third quarter, or 64 cents a share. Analysts had expected only 5 cents. Caterpillar’s stock is up 165 percent since March. How did Caterpillar do it? Not by selling more bulldozers. It did it by cutting over 37,000 jobs.

The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours.

The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. Money costs so little these days it’s easy to substitute capital for labor. It’s also easy to buy up foreign assets with cheap American money. And it’s now blissfully easy for Wall Street to borrow money almost free and buy all sorts of interests in foreign assets, especially commodities. That’s why we’re seeing the prices of foreign commodities and other assets go through the roof.

At the same time, the Treasury continues to be fixated on keeping banks afloat. The Administration’s mortgage mitigation efforts are lagging. Small businesses are starved of credit. The White House has announced a “jobs summit,” which is better than nothing but not nearly as good as pushiing immediately for a larger stimulus, a new jobs tax credit, and a WPA-style jobs program.

The Fed and the Teasury have, in effect, placed a huge bet on a recovery driven by asset prices. That’s a bad bet. The great disconnect between the stock market and jobs is pushing stock prices way out of line with the real economy. This isn’t sustainable.

No economy can recover without consumers. Yet American consumers, who constitute 70 percent of the U.S. economy, are facing mounting job losses as well as pay cuts. They’re in no mood to buy and won’t be for some time.

Where is this heading? No place good. Without a major shift in policy — both at the Fed and in the White House — the economics point to a big stock-market correction and a double dip. The politics point to substantial losses for Democrats next year.

Dear Senator,

I know you’re in a tough spot. It would be bad enough if you only had to get Ben Nelson, Evan Bayh, Mary Landrieu, and Blanche Lincoln on board, but anyone who has to kiss Joe Lieberman’s derriere deserves a congressional medal of honor.

But Harry, you really need to take on future health-care costs. The House bill fails to do this. The public option in the House bill is open only to people without employer-provided health insurance. That will be too small a number to have bargaining clout to get good deals from drug companies and medical providers. And it will mainly attract people who have more expensive medical needs, which is why the Congressional Budget Office decided it would cost more than it would save.

You also know a public insurance option that’s open to everyone would cut future health costs dramatically by imposing real competition on private for-profit insurance plans. That’s why the private insurers hate the idea. Even if states were allowed to opt out of this robust public option, the big states would almost certainly opt in, giving it the scale needed to negotiate great deals from drug companies and medical providers. This would put pressure on any state that opted out because their citizens would soon discover they’re paying far more.

In addition to the House’s weak public option, the deals the White House and Max Baucus made with the drug companies and the AMA will force Americans to pay even more. If, on the other hand, Medicare were allowed to negotiate lower drug prices, biotech drugs weren’t granted a twelve-years monopoly, and doctors had to accept Medicare reimbursements in line with legislation enacted years ago, Americans would save billions.

You know all this but you’re also trying to get 60 votes in order get any bill to the floor. You have my sympathies, but unless you get these reforms into the final Senate bill you’re not really helping most Americans afford future health care.

So what do you do?

First, try for the “reconciliation” process, which requires only 51 votes. Every one of the reforms I mention above would fit under the Byrd rule.

If that doesn’t work, wrap these reforms together — a public option open to everyone (allow states to opt out of this if they dare), Medicare-negotiated drug benefits, no 12-year monopoly for new drugs, and a major squeeze on Medicare reimbursements for doctors — and have CBO score the savings. I guarantee you, the number will be large. Then you should dare anyone, Democrat or Republican, to vote against saving Americans so much money in years ahead. How is Ben Nelson going to face voters in Nebraska who would have to pay, say, 20 percent more for health care in the future if Nelson refuses to go along?

If neither of these tactics work, then take whatever bill you must to the Senate floor. But then introduce this reform package as the very first amendment to the bill. Call it the “Ted Kennedy Amendment for Helping Middle Class Families Afford Health Care,” and whip the hell out of the Democrats. Get the President to help you. Surely Joe Biden will. If you can’t get 51 votes out of Dems for this, publish the list of Dems who vote against it, strip them of their committee chairs or sub-chairs, and make sure the Democratic Senate Campaign Committee gives them zilch when they’re up for re-election.

Nobody promised you this would be easy, Harry. But, hell, why are you there, anyway? Your responsibility isn’t just to pass whatever will muster 60 votes and that the President and Dems can later call “health care reform.” It’s to do the right thing by the American people and bring down future health-care costs. Don’t cave in to Lieberman or Nelson or the drug companies or the private insurers or the AMA or anyone else. Lead the charge.

All best.

On the jobs crisis, Nov 4, 2009. (Produced by Jacob Kornbluth and Raub Shapiro)

And now there are five — five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called”talent,” and raking in huge profits. The biggest difference between now and last October is these biggies didn’t know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who’s just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can’t say no, the biggies will drive even faster now, taking even bigger risks.

What to do? Two ideas are floating around Washington, but only one is supported by the Treasury and the White House. Unfortunately, it’s the wrong one.

The right idea is to break up the giant banks. I don’t often agree with Alan Greenspan but he was right when he said last week that “[i]f they’re too big to fail, they’re too big.” Greenspan noted that the government broke up Standard Oil in 1911, and what happened? “The individual parts became more valuable than the whole. Maybe that’s what we need to do.” (Historic footnote: Had Greenspan not supported in 1999 Congress’s repeal of the Glass Stagall Act, which separated investment from commercial banking, we wouldn’t be in the soup we’re in to begin with.)

Former Fed Chair Paul Volcker, whose only problem is he’s much too tall, last week told the New York Times he’d like to see the restoration of the Glass-Steagall Act provisions that would separate the financial giants’ deposit-taking activities from their investment and trading businesses. If this separation went into effect, JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. And Goldman Sachs could no longer be a bank holding company.

But the Obama Administration doesn’t agree with either Greenspan or Volcker. While it says it doesn’t want another bank bailout, its solution to the “too big to fail” problem doesn’t go nearly far enough. In fact, it doesn’t really go anywhere. The Administration would wait until a giant bank was in danger of failing and then put it into a process akin to bankruptcy. The bank’s assets would be sold off to pay its creditors, and its shareholders would likely walk off with nothing. The Treasury would determine when such a “resolution” process was needed, and appoint a receiver, such as the FDIC, to wind down the bank’s operations.

There should be an orderly process for putting big failing banks out of business. But this isn’t nearly enough. By the time a truly big bank gets into trouble — one that poses a “systemic risk” to the entire economy — it’s too late. Other banks, competing like mad for the same talent and profits, will already have adopted many of the excessively-risky banks techniques. And the pending failure will already have rocked the entire financial sector.

Worse yet, the Administration’s plan gives the big failing bank an escape hatch: The receiver might decide that the bank doesn’t need to go out of business after all — that all it needs is some government money to tide it over until the crisis passes. So the Treasury would also have the authority to provide the bank with financial assistance in the form of loans or guarantees. In other words, back to bailout. (Historical footnote: Summers and Geithner, along with Bob Rubin, while at Treasury in 1999, joined Greenspan in urging Congress to repeal Glass-Steagall. The four of them — Greenspan, Summers, Rubin and Geithner also refused to regulate derivatives, and pushed Congress to stop the Commodity Futures Trading Corporation from doing so.)

Congress is cooking up a variation on the “resolution” idea that would give the Federal Deposit Insurance Corporation authority to trigger and handle the winding-down of big banks in trouble, without Treasury involvement, and without an escape hatch.

Needless to say, Wall Street favors the Administration’s approach — which is why the Administration chose it to begin with. If I were less charitable I’d say Geithner and Summers continue to bend over bankwards to make Wall Street happy, and in doing so continue to risk the credibility of the President, as well as the long-term financial stability of the system.

Wall Street could live with the slightly less delectable variation that Congress is coming up with. But Congress won’t go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street’s lobbyists and lackeys are all over Capitol Hill.

The Street obviously detests the notion that its behemoths should be broken up. That’s why the idea isn’t even on the table. But it should be. No important public interest is served by allowing giant banks to grow too big to fail. Winding them down after they get into trouble is no answer. By then the damage will already have been done.

Whether it’s using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up — and soon.