Yesterday, Vice President Biden took his Middle Class Task Force world tour to Syracuse University to discuss college access and affordability. The forum's all-star lineup also included Treasury Secretary Tim Geithner and Education Secretary Arne Duncan.

The event coincided with a report from the Treasury Department on the effectiveness of 529 college savings plans (full disclosure: New America, through the College Savings Initiative, is mentioned as a resource multiple times). You can read Treasury's observations and recommendations here.

More interesting however, was Secretary Geithner's full-throated support of saving broadly -- and saving for higher education in particular -- as a means to close achievement gaps and regain America's footing as a global education leader.

Can we get this straight?  Are banks the critical lubricant for the economy or just another industry?  This week's Business Week provides a contrast worthy of those conflicting headlines about the same event the New Yorker used to run at the bottom of short columns.  In an interview with Maria Bartiromo at the front of the magazine, Wells Fargo CEO Richard Kovacevich is quoted as saying that Treasury should  support banks before other industries because "for every dollar you put in, institutions get to lever that 10 to 20 times in terms of the loans they can make."  And "It's important to invest in the banks because banks are the grease that keeps the real economy moving."  Yet 10 pages later, Business Week tells us that banks are saying they won't lend until 2010, and the government money flowing into them won't help.   Kovacevich himself is quoted in this article as saying "lending won't start until everyone agrees the bottom has been reached," although to be fair, in the earlier article he says he hopes the bottom will be reached quickly.

Unless banks are going to lend with the government funds they're getting, they might as well get in line behind firms in the real economy, like autos, airlines, and manufacturing in general.  Because if a bank doesn't lend, it's just another corporation, and not one producing real goods.   While I'd like the banks' attitude to be different, I don't particularly blame the banks for this stance, especially those whose capital condition is somewhat shaky because of doubt about the actual value of the assets they are holding.  As a fiduciary matter, if they're concerned about having enough capital to satisfy examiners as well as the market, that's probably the right stance. 

No, the problem lies with the Treasury.  As Kovacevich points out, a dollar of bank equity capital can be turned into $10 to $20 of loans.  But it need not be levered up that much to be effective.  If the Treasury were to say to the banks -it's not too late, as it appears no actual agreements have been signed-that for every dollar of equity we put in, you need to make $5 or $7 of loans, the banks would still be getting a good deal, would still be enhancing their equity position, and would, contrary to the current situation, actually be lubricating the economy.   Any chance the Treasury will explain why this isn't a good idea?  Or better yet, just adopt it.

A group of 166 economists from around the country wrote a letter protesting the $700bn bailout plan. They say it is unfair to help risk-taking financial firms and not mortgage holders, unclear on what terms toxic assets will transfer from private institutions to the state, and that the bailout will damage the long run health of the financial system.

The letter offers no explicit alternatives, but implies that a better plan would have more support for mortgage holders, clearly define the contracts between the Treasury and private firms, and not abandon the free market principles that anchor the U.S. financial system.

Snapshot asks, what would their vision for the bailout plan look like?

Promises by the U.S. Treasury and Federal Reserve to support Fannie Mae and Freddie Mac have not reassured shareholders. By noon Tuesday, shares of Fannie Mae dropped 23.5% and Freddie Mac plunged 24.9%. Given the loss of investor confidence in these mortgage finance companies, it appears that the promised equity investment by the Treasury may be utilized. In addition, Paulson proposed increasing Fannie and Freddie's $2.25bn credit lines to an undetermined amount to ensure "flexibility" and "minimize taxpayer risk."

Snapshot asks, what is the limit of taxpayer responsibility to maintain Fannie and Freddie's share price and help maintain financial stability?

Wall Street Journal - Bernanke, Paulson Aim for Stability with Fannie, Freddie Proposal
U.S. Treasury - Testimony by Secretary Henry M. Paulson, Jr.
Ben Bernanke - Semiannual Monetary Policy Report to the Congress