The AIG opportunity

Marc Ambinder writes,

White House chief of staff Rahm Emanuel just had to scratch that itch. Speaking for the President and to the New York Times yesterday, he called the contretemps over the AIG news a "distraction" from the "main priority of getting the financial system stabilized." It is worth unpacking these words. Emanuel did not mean to betray an ambivalence about the outrage of the bonuses. Remember: the chief is supposed to be the longest-term thinker in the White House. He knows that the White House either rolls back on its heels, becomes defensive, and yields to the diversion, or Obama uses AIG as an example to catalyze public support for significant regulatory reform.

I read in a number of joints that Rahm's use of the term "distraction" showed an administration that didn't have its talking points together. Ambinder sees it as Emanual understanding that AIG is a tactic, not the focus.

This is more than tough rhetoric: I take this to mean that the administration will use the AIG crisis to take a more active role than it otherwise would have. Wall Street has been waiting for the Treasury Department's plan to mitigate the poison and the credit-market-locking effect of toxic assets held by major banks. The administration's economic commanders would prefer to create public-private partnerships to remove those assets from the books of especially troubled institutions; the government and corporations would share the risks. When Obama says explicitly - "My interest is not protecting the banks," he's scaring that capital away. Why would a hedge fund want to subject itself to the scrutiny that AIG is currently receiving?

One sign that Obama really means this: he called Tim Geithner the hardest-working Treasury Secretary since Alexander Hamilton and is standing by a man who is now thoroughly distrusted by the finance sector of the economy. Make no mistake: you can blame - or credit - CNBC with introducing the notion that, because Geithner doesn't inspire confidence, whatever that means, he might want to think about resigning.

Innerestin'.