Mr. Geithner begins the day with an op-ed in the Wall Street Journal. Naturally.
[...] The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises. …
Well, what Mr. Geithner has planned, according to most of what I read, may be a serious effort, but it sure isn’t change. The power structure stays intact, compliments of the American taxpayer. I hope these guys know what they’re doing, but I’m feeling more than a little uneasy. I’m not alone.
… If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson. This is more than disappointing. In fact, it fills me with a sense of despair.
Politico has the “60 Minutes” interview if you didn’t see it last night, and here’s the transcript.
To add, in other financial news, Howard Dean joins CNBC. That could get interesting.
I’ll be out until later today. So let me know what’s going on and keep everyone up on the news in the comments. I’d appreciate it.
The actual proper analysis, Mr. Krugamn, is Paulson should have done this with the TARP money in the first place. What’s being done now is 100% the right thing to do and a good public/private effort to value and buy these stagnant assests. This is how the TARP money should have been used all along.
Taylor and I will be out for the day
GeoT
You are a hoot
Krugman has become nothing but a gadfly, who seems to have no answers except to bash everything Obama try,s. I have yet to hear a clear solution from Krugman as to what to do with all the toxic assets. I think Geithner has the right idea and this should have been done months ago.
I agree with Chucky T. (for once) when he said that Krugman hasn’t agreed with anything Obama has done since he announced he was running for president.
GeoT and angels81 are right on the money. Right about the plan, and right about Krugman reflexively criticizing anything Obama does. Talk about starting to look “obsessive.”
Krugman’s criticism doesn’t even make sense. He says we should guarantee most (but not all) bank debt. And we should take temporary control of many (but not all) “truly insolvent” banks.
Sounds great in concept. Here’s some problems. If we guarantee the banks’ debt, aren’t we subsidizing the banks, which is Krugman’s main criticism of the Geithner plan? And, by the way, how do you determine which banks are “truly insolvent”? After all, if you base on it today’s depressed asset prices, virtually all major banks are “truly insolvent.” Alternatively, you could try to establish a reference market to determine the true value of the assets. But — ahem — that would look very much like the Geithner plan, wouldn’t it? Oh, and last question: how do you determine which bank debt NOT to guarantee, and which banks NOT to take temporary control of? Flip a coin? Or do some stress testing to determine which banks have adequate assets/reserves? Except that’s exactly what Geithner and the folks at the Fed have been doing.
I think it’s fair to assume that Obama, Geithner, Summers et al have all considered Krugman’s proposals and found them wanting. And for good reason. Krugman criticizes a plan where the government and private financial institutions SHARE the risk of toxic assets. And his solution? That the U.S. government assume ALL of the risk of “toxic assets.”
I know he’s a Noble laureate and all, but that’s just dumb.
Repost from March 8, as the comments are apropos:
I vote for patience all around, as hard as that may be in this scary environment. The critical problem with the banks is that they are servicing assets that have substantial value if they are held to maturity. However, in this liquidity crisis, we’ve careened from irrational exuberance to irrational fear: because no one knows where the bottom is, investors will not pay more than a very steeply discounted price for the assets. And because banks are required to mark to market, they have to write down the value of these assets to their steeply discounted prices.
In such an environment, no bank would be willing to sell their assets at a price at which investors are willing to buy. So the critical issue is how to establish a market-clearing price. That is what Geithner is working on, but I suspect that the details keep changing as a result of the rapid deterioration in the markets.
I don’t know what the eventual plan will look like. But the overall structure: private-public partnership, with government backstopping losses, sounds about right to me. I suspect that the government backstop will kick in somewhere just below the expected value to maturity of the assets, such that, if the predictions are right, it will not be called upon.
And if it is called upon, we’ve got more fundamental problems anyway, and it’s possible nothing would have worked. So I vote for giving Geithner et al more time to price these assets correctly. Calls for Geithner’s removal at this juncture are premature and intemperate, in my opinion.
To say that I am dissatisfied that the rich old white guys who brought us this disaster are going to walk away STILL RICH old white guys is at the very least an understatement.
However ya gotz ta startz somewherez.
Whene the ship is stove you can’t throw overboard the clowns who were at the wheel….just yet.
You must plug the holes and start the pumps.
But once this baby is on an even keel again…..
Do I hear the distant sound of an angry mob with torches, pitchforks and a Guilateen(spelling? HEAD CHOPPER!)
“But once this baby is on an even keel again…..
Do I hear the distant sound of an angry mob with torches, pitchforks and a Guilateen(spelling? HEAD CHOPPER!)”
I sure hope not. I think we’ve had enough misguided populism on these issues. The 90% tax is just the latest in a series of bad moves.
ogenec says:
23 March 2009 at 10:02 am
They’re talking about actual mutual funds (publicly traded) as vehicles to purchase the assets. I’m not sure I want to invest in the “Fidelity Toxic Asset Fund”
Guillotine
secularhumanizinevoluter says:
23 March 2009 at 10:04 am
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you’re right sec, and good analogy. Steady the ship and then make sure prudent regulations are put back in place to deal with the excesses (and greed) that got us here.
now I’m REALLY out… good day all.
GeoT
I call it more than greed and excess – they gambled too! Read Eliot Spitzer “in the News” if you already haven’t.
GeoT says:
23 March 2009 at 10:14 am
They’re talking about actual mutual funds (publicly traded) as vehicles to purchase the assets. I’m not sure I want to invest in the “Fidelity Toxic Asset Fund”.
Understood. But you’d make a lot of money if you did, I bet.
I agree with righting the ship and putting it prudent regulations. As Obama said on the campaign trail, we should regulate financial institutions according to what they do, not what they are called.
As to the “greed” charge, I’ve never understood it. In a capitalistic society, all economic actors are motivated by greed. No company would make a product if it could only recoup its costs and was just breaking even. It is the promise of outsize profits that lures entrepreneurs into making things. Competition normally acts as a check on excessive profits (see Wal-Mart, Costco, Target).
I don’t have a problem with greedy capitalists, whether on Main or Wall Street. I do have a problem with the lack of sensible regulation that allows greed to run unchecked.
Meanwhile, back at the ranch –
Home sales rose 5% -
- and the DOW is rising like an underwater air bubble
http://www.msnbc.msn.com/id/29836196/
Existing-home sales rose 5 percent in Feb.
Biggest jump in more than five years; median price down 15% to $165,400
Dow industrials+270.08 +3.71%
last 7548.46
Greed is not good.
ogenec says:
23 March 2009 at 10:31 am
I agree with righting the ship and putting it prudent regulations. As Obama said on the campaign trail, we should regulate financial institutions according to what they do, not what they are called.
As to the “greed” charge, I’ve never understood it. In a capitalistic society, all economic actors are motivated by greed.
____
crap! pulled back in again.
No, profit is not evil. When I say greed I’m talking about the opportunists who made a tone of money and then passed the risk down the line (bundling) until all the risk is now in “our” pockets. Maybe hedge funds are the worst culprits, I don’t know. Greed coupled with ruthless diregard for the next guy is what I’m saying.
my spell check seems to be on the fritz
ogenec says:
23 March 2009 at 10:31 am
No company would make a product if it could only recoup its costs and was just breaking even.
_______
The exception (and a shining example) to that rule is a company like The Auto Club (AAA) A very well run company with great customer service and top notch products
and Not-for-Profit.
Nobody is suggesting that they now make a profit.
“Liberty is the luxury of self-discipline. Historically, those people that did not discipline themselves had discipline thrust upon them from the outside.”
Alistair Cooke
Nobody is suggesting that they not make a profit.
GeoT, I was not basing my “greed” comment on what you said. It’s just that I’ve heard so many comments in papers, on TV etc. about “greedy Wall Streeters” that I had to say something. Yes, they’re greedy. They’re supposed to be. The paradox of Wall Street is that because everybody tries to beat the market (i.e., being greedy), virtually nobody does.
In other words, capitalism REQUIRES being greedy. Per Adam Smith:
every individual necessarily labors to render the annual revenue of the society, as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is pro-rooting it . . . he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Smith, p. 423)
I agree, Krugman has been a little cranky with Obama’s plans. But especially after he won the prize. A little ‘Nobel Narcissism’, anyone?
djjl, I think we’re saying the same thing: greed is good, but unchecked greed is not. In otherwords, you need sensible regulation to prevent the effects of greed’s excesses.
I think of capitalism as a sandbox with kids playing with toys. You need an adult (the government) to make sure the toys are safe, and that the bigger kids don’t beat up the little kids and take their toys. Aside from that, the kids should be left alone to play. And the adult should rarely, if ever, enter the sandbox and play with the toys herself.
I see we’re all having fun. I’ve taken a hiatus with listening to msm though I confess to watching 60 minutes last night. Interesting. I hear all the arguments or and against and I don’t pretend to know all the intricacies of this financial problem. I have reservations, let’s put it that way. However, I am not about to write Obama off after a 60-day Presidency. That’s ludicrous and shows how some people want to start screaming that he’s a failure. He only becomes a failure if he stops trying to solve the problems we have. And he has a plateful.
With that said I went back to Adam Smith and “The Wealth of Nations.” Even he said there were inherent problems with unchecked capitalism. I believe that anyone who is willing to take a risk with his/her resources and money should be allowed to profit. (I’ve taken a few risks in my life – I did marry my husband, and have reaped the rewards.) I’d like to link you to an article that was written last year I think and discusses the concept of uncontrolled capitalism. I’m just against not being able to put the brakes on when it gets out of hand (any fool could have seen the collapse of the housing market coming. The bubble kept getting bigger and bigger and like a balloon you know it had to bust.) We have all kinds of controls in this society to limit the negative effects on society (you know, speed limits, drinking while under the influence, etc.). The only things I know we can’t control are the weather and natural disasters, though I wouldn’t put it past anyone to try and do it. Here’s the link:
http://tinyurl.com/dmnk4k
Let me know what you all think.
JA
I don’t think people are wanting to write President Obama off – I think they are scared.
The housing market bubble was artificially created by mortgage lenders who chose to gamble. Just see how the housing collapse “hurt” probably the worst of them all – CountryWides’s former CEO Angelo Mozilo.
Jane
You should have been around Saturday – That was FUN.
Jane Austen says:
23 March 2009 at 11:16 am
JA, thanks for the link. I wholeheartedly agree with your thoughts and the linked article. FWIW, what the Republicans are offering is the exact opposite of a “free market.” A free market is defined by several characteristics, including free access to information by all users.
If you take derivatives (including CDSs) as an example, the problem is that most of them were traded over the counter in a private transaction. There was no market (such as the stock market or a chicago board of trade) for trading these instruments, and so there was not price discovery that a free market requires. Which helps to explain why so many derivatives were woefully mispriced.
Democrats can and should make an aggressive argument that they, not Republicans, are the protectors of real capitalism. That we regulate not to hurt business, but to help it. When all market participants have access to information, efficiency increases and prices decrease. The Republican way — opaque markets, and no regulation — is a perversion of capitalism. And we are learning that hard lesson now by spending tons of money ex post to fix stuff that could have been avoided up front.
Back to my sandbox analogy. The government should have regulated derivatives by requiring trading in a secondary market, and increasing collateral requirements. That would have made these “toys” safe. But because we did not, the government has to get in the sandbox, otherwise the kids won’t play.
(Okay, now I really have to get back to work
).
djjl says:
23 March 2009 at 11:24 am
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djjl – I was lurking. I was just too tired to comment. The munchkin had roto virus and was horribly sick. She lost 3 pounds in 5 days, dehydrated and ended up in the ER on iv. But I always manage to get to this site, just to keep up with all the fun.
I know people are scared, it’s human nature to feel threatened when your very existence is at risk. So I understand that but I’m just saying we have to take a deep breath and stop living in fear. We did that for the past 8 years. And I refuse to live my life in fear of the unknown. I believe in the resiliency of the American people and our way of life. I just believe that someone has to watch the “hen house” before the fox takes all the eggs. By the way my hubby who was planning to retire at 62 (he’s a bit younger than me) has decided that he has to put it off until things simmer down a bit.
“I don’t have a problem with greedy capitalists, whether on Main or Wall Street. I do have a problem with the lack of sensible regulation that allows greed to run unchecked.”
I’m not talking about greed. I am talking about CRIMINAL behavior and acts. I am talking about LIEING to stockholders. I am talking about INSIDER TRADING. I am talking about CIRCUMVENTING with CRIMINAL INTENT rules set in place to regulate financial transactions and record keeping. I am talking about THEFT by DECEPTION as in the whole bonus fiasco.
After things calm down, investigate, indict where called for, and if convicted LOCK THEIR ASSES UP AND CONFISCATE EVERY FARKIN NICKLE THEY HAVE to make restitution to the folks bilked. Namely US TAXEPAYERS.
Audiegrl says:
23 March 2009 at 11:09 am
I agree, Krugman has been a little cranky with Obama’s plans. But especially after he won the prize. A little ‘Nobel Narcissism’, anyone?
Krugman has always voiced his opinion – he did it during the Bush administration and he’s doing it now. He has had a good track record. What you are referring to as ‘Nobel Narcissism’ is shortsighted – the economic crisis came to the forefront during the middle to late September. Nobel winners are announced in October. The many bailout programs were just taking shape then.
Frankly, in retrospect – don’t you wish the Bush administration had paid more attention to individuals who believed there were not any weapons of mass destruction in Iraq, before we invaded? If memory serves me correctly, those who questioned the administration back then were written off as either attention seekers or unpatriotic.
secularhumanizinevoluter says:
23 March 2009 at 12:08 pm
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Sec – I agree with all you have said. That’s why regulation and monitoring is imperative. If this had all been in place these criminal and fraudulent acts would not have been allowed. This is where Bush dropped the ball. It was his stewardship that let this get out of hand.
nancy50 says:
23 March 2009 at 12:15 pm
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I’ll always believe that Bush knew that there were no WMD in Iraq but wanted to invade Iraq for whatever reason. I also believe those who protested were the actual patriots. A patriot asks questions and doesn’t follow blindly.
Secular, agreed. nancy50, the problem isn’t that Krugman is criticizing. It’s that his criticism doesn’t make sense on its own terms. if subsidizing banks is bad, why does he want the government to take all the “toxic asset” risk from the banks? It just does not compute, which leads me to infer that his criticism is a tad biased.
The market is up – at least the financial stocks. Evidently Wall Street thinks it’s just peachy to have about $10K from every family on Main Street handed over to them. Of course, it’s not as good as the $2.5T Bush tried to give them from the Social Security trust, but I’m sure the rest will be forthcoming.
Paul Krugman is not alone in his concerns. I’ve been reading a number of (left of center) economic blogs for months, and so far only Brad DeLong has jumped on board the Geithner Plan. The rest are either quoting and endorsing Krugman or saying something similar.
Dow 7,601.91 +323.53 +4.45%
Nasdaq 1,518.10 +60.83 +4.17%
S&P 500 803.27 +34.73 +4.52%
booya.
new thread (but I’m not really here)
nancy50 says:
23 March 2009 at 12:15 pm
Sorry Nancy, but that is how he comes across to me. A little puffed up and very negative. Its just my opinion, so it really doesn’t mean anything outside my own head.
doppich says:
23 March 2009 at 12:31 pm
The market is up – at least the financial stocks. Evidently Wall Street thinks it’s just peachy to have about $10K from every family on Main Street handed over to them.
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I’m a “left of center” investor who owns stocks and I like this plan… ALLOT. Sometimes economists just like to hear themselves talk… bloggers are like that sometimes
doppich says:
23 March 2009 at 12:31 pm
The market is up – at least the financial stocks
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Housing stocks up strong as well. Actually the gains are strong across all sectors.
Krugman obviously has a good track record. They don’t hand out Nobel prizes to preening economists. The problem some have with his criticism is that he is not agreeing with the economic advisors for President Obama.
Secular, I too agree with what you said.
djjl says:
23 March 2009 at 12:43 pm
Krugman obviously has a good track record. They don’t hand out Nobel prizes to preening economists.
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I agree with that djjl. I agree with allot of what Krugman says but sometimes I get the feeling he only want’s HIS ideas to be implemented.
The fact that he thinks the TARP wasn’t BIG enough should tell you which direction he was going in. Can you imagine the outrage now if the Trillions everyone is yelling about had been doubled, like Krugman called for? And nationalizing the banks? It would never be allowed to happen.
Krugman lost me this weekend with his piece about “Oh no….” I’m no world economist, but even I knew that Obama made his choice before he took office. Bush gave him the option. When Obama took the 2nd TARP, the deal was done.
So did Krugman really think that another plan was being discussed? That was a very silly assumption.
This will stabilize the markets……or not. If not, then we’ll go to Plan B.
But it was clear to me that this was the path.