"The sounder strategy -- and the one we've recommended for two years -- is to address systemic financial problems the old-fashioned way: bank by bank, through the Federal Deposit Insurance Corp. and a resolution agency with the capacity to hold troubled assets and work them off over time. If the stress tests reveal that some of our largest institutions are insolvent or nearly so, it's then time to seize the bank, sell off assets and recapitalize the remainder. (Meanwhile, the healthier institutions would get a vote of confidence and could attract new private capital.)"

So the question must be raised: where on earth is the Obama administration getting its advice on bank policy at this point, and how is it continuing to justify its staunch opposition to swift nationalization? Even the Congressional Oversight Committee, in its latest April report, supports restructuring or liquidation of the banks. Geithners and Summers aren't stupid (although one begins to wonder) -- so the only plausible answer is politics.

Perhaps this all be part of a larger trend, captured by a recent memo in the NYT, "Despite Major Plans, Obama Taking Softer Stands"?

President Obama is well known for bold proposals that have raised expectations, but his administration has shown a tendency for compromise and caution, and even a willingness to capitulate on some early initiatives...

"The thing we still don't know about him is what he is willing to fight for," said Leonard Burman, an economist at the Urban Institute and a Treasury Department official in the Clinton administration. "The thing I worry about is that he likes giving good speeches, he likes the adulation and he likes to make people happy." So far, he said, "It's hard to think of a place where he's taken a really hard position."

Can Obama simply not stand up to the political pressure from bankers pushing against bank restructuring? That's what former chief IMF economist Simon Johnson recently argued in his seminal Atlantic piece, "The Quiet Coup." Or is it largely an ideological problem, particularly with Geithners and Summers?

Nothing is yet certain, but what's clear is that Obama is performing very weakly on this issue, and unless his administration's performance improves soon, it could become the Achilles heal of his legacy. As Robert Kuttner, author of the best-seller "Obama's Challenge" and major Obama supporter, recently concluded an op-ed:

"I fear that these columns have been too polite. They have directed criticisms at Treasury Secretary Tim Geithner and national economic policy chief Larry Summers. Lord knows, they richly deserve the criticism. But let's not kid ourselves. The man they work for is named Barack Obama.

President Obama has promised to run an administration of unprecedented openness. And in some respects, such as the ground rules for spending stimulus funds, he has. But in the most important area of all, the financial rescue, the administration is making trillion dollar decisions relying on the Federal Reserve and a small Wall Street club of advisors, with no transparency or public accountability...

We were promised unprecedented openness. In the most momentous area of policy for getting the economy functioning again for ordinary Americans, we have instead unprecedented secrecy, designed by and for Wall Street. We expected better of Obama."