Oh, good grief, just when you thought it couldn’t get any worse. Here’s a round up of chatter about the leaked details of the Geithner plan, which is to be revealed next week.
Paul Krugman assesses the carnage.
The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.
The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank.
[...] This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.
What an awful mess.
James K. Galbraith offers his analysis.
Calculated Risk, using the leaked snippets from the New York Times:
The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money … Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.
With almost no skin in the game, these investors can pay a higher than market price for the toxic assets (since there is little downside risk). This amounts to a direct subsidy from the taxpayers to the banks.
Naked Capitalism has the bottom line being offered by many:
The mechanics will become more apparent to the public over time and may yet come back to haunt Team Obama.
As an aside, bankers are balking at what they see as a “punitive” tax on their industry. For the record, I think the 90% tax passed in the House is not only onerous, but a case of shutting the barn door after the horse got out because they didn’t know there were horses in the barn to begin with. Seems like a chilling message to send.
“As an aside, bankers are balking at what they see as a “punitive” tax on their industry. For the record, I think the 90% tax passed in the House is not only onerous, but a case of shutting the barn door after the horse got out”
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It seemed like a stunt that didn’t really accomplish anything.
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I really like Krugman but I always wonder how he would hold up in a position like Geitner’s under the same conditions. The critique is warranted but maybe Krugman could imagine himself in Geitner’s shoes, just for some perspective.
This whole sordid mess scares the shit out of me. To see our governing body single out a group of people for punitive taxation is something I never thought I’d see in the United States.
Further, watching Chris Dodd stand before the American people on CNN and lie his ass off, only to change his story twenty four hours later, is not a very flattering picture of American politics, our leaders, or the Fourth Estate. Obama’s gaff about the Special Olympics is apparently of more interest to our cowardly Fourth Estate than a politician blatantly lying to us is.
When these bastards can stand before us, look us in the eye, and feed us absolute horseshit, without suffering repurcussions for their deceit, what possible reason do we have to trust anything that comes out of their mouths? So, if we can’t trust their prattle, if they feel no compunction about unabashedly lying to us, how can we trust them to responsibly legislate special taxes to target individuals or groups that are not cow-towing to their demands?
This IS NOT a defense of the AIG scumbags. But it is an indictment of these posturing pieces of crap in Congress, whose indignation is laughable. Have you noticed these people vote themselves a pay raise with alarming frequency? Whats up with Pelosi’s demands that she get an Air Force jet for her and her entourage damned near every weekend? And Obama? Gads, he just had the most expensive throning ceremony in the history of mankind. Who are these posturing spendthrifts to lecture anyone on fiscal responsibility?
taylor-how does obama even sell this geithner plan poltically? i still dont get how it works and neither will the public. it wont restore confidence. looks like another lsot decade
Since the 90% thing will *never* get through the Senate (or the Supreme Court) – this ‘trap’ seems obvious. About 50 Republicans *voted For* the largest tax increase in history.
That fact will be used against them in the future.
Perhaps that was the whole plan?
It’s punative…..and the same impetus that stirred the support for Iraq war.
I watched this same kind of “feeling” spur on the dismissal of terrific senators and their demise when they spurred against the war.
This is sincerely when people need to decide to calm down and protect democracy.
It feels great to blast out against the demons.
However, everyone who retired early knows that we sort of liked those demons a few months ago.
They fluffed up our retirement.
Anyway, enuf said. It’s over.
We are so bankrupt, it is ridiculous to think otherwise.
We are toast.
AnninCA – just out of curiosity – given your accessment – IF Obama somehow manages to turn the whole thing around (and we even see a 10,000 DOW this year) – will jump on the bandwagon and declare Obama as one of the greatest presidents ever?
Please don’t answer with “That won’t happen”. That isn’t the question.
meant “will you jump on the bandwagon”, of course.
The “bandwagon” would have already left by then ….
hc4bo, Good answer (not).
It is a very simple question – but I can’t believe the way my right-wing chums would rather internally hemorrage and bleed to death – than answer it. *L*
Here is Clive Crook’s (political economist) at the Financial Times take on the plan that will come out. This is a measured analysis of the proposed plan in which he gives his opinion on why the administration did not go for straight nationalisation. This still feels like a complicated plan to me, but at least the rationale is explained, and the proposal might not be the disaster predicted by Krugman. Everyone seems so adamant that they have the final solution to this crisis, yet no one really knows the way forward… its really confusing and depressing.
WEALTH OF NATIONS
Time To Start A Bad Bank
Treasury has better reasons than mere timidity to be leery of outright temporary nationalization.
by Clive Crook
Saturday, March 21, 2009
http://www.nationaljournal.com/njmagazine/wealthofnations.php
pmichael….
Who doesn’t want Obama to succeed? We are all in this economy together. And don’t point to that asshole Limbaugh, he’s a deviant, and deserves no mention in any rational debate.
I guess my point is that you seem to use “RW” somewhat derogatorially in your comment directed towards Ann, but really, what does this clusterfuck have to do with RW vs LW? There is plenty of blame to go around. Is Dodd standing before us and lying through his teeth a RW transgression? Hardly.
Frankly, I will be suprised if Obama can turn this thing around. It is being over-argued along party lines, with political grandstanding superceding any hope of constructive concensus about what is truly the best course of action. Both sides are in CYA mode, because both sides are equally as complicit in dragging us down to our current situation. Its not as if we can simply ignore all the connections the politicians on both sides of the fence have to the architects of this meltdown. Are we to just ignore the fact that Dodd and Obama were the top recipients of AIG political contributions, just because they, and we, are from the so-called “left”?
It’d be nice if Obama pulled us out of this hole. But his refusal to seek accountability for the crimes of the last eight years, the furious backpeddling he did after AIPAC took him to task for his “plight of the Palestinians” comment, and his failure to defend Freeman or speak out against Israel’s use of white phosphorous against a civilian population, have pretty much soured any optimism I once enjoyed about Obama’s promise of “change”. Something tells me, at the end of the day, this RW vs LW horseshit is just designed to keep us bickering amongst ourselves while the politicians on both sides of the aisle act in unison to give us all a royal screwin’.
And I hope that the Senate or the administration refrain from knee-jerk reactions and do not approve the 90% tax cut.
From today’s FT:
Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.
There were fears that the backlash triggered by AIG’s payment of $165m in bonuses to executives responsible for losses that forced a $170bn taxpayer-funded rescue would have devastating consequences for the largest banks.
“Finance is one of America’s great industries, and they’re destroying it,” said one banker at a firm that has accepted public money. “This happened out of haste and anger over AIG, but we’re not like AIG. The banker added: “It’s like a McCarthy witch-hunt…This is the most profoundly anti- American thing I’ve ever seen.”
Vikram Pandit, Citigroup’s chief executive, told employees in a memo that some anger about executive compensation was “warranted”. But he hit out against the idea of a special tax. “The work we have all done to try to stabilise the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees,” he wrote.
Some policymakers expressed concern that banks may try to break out of the government’s embrace by paying back public capital even if the price is a more severe credit squeeze. They also fear that financial institutions may decide not to take part in public-private partnerships to finance credit markets and acquire toxic assets.
The outcry followed Thursday’s approval by the House of Representatives of a bill that would impose 90 per cent tax on bonuses to employees whose gross income exceeded $250,000 at bailed-out firms. Next week the Senate will also consider a hefty tax on bail-out bonuses amid calls for an investigation into who was responsible for allowing the pay-outs. Some senators are calling for a committee hearing on a bill that would impose a 70 per cent tax at bailed-out institutions, half paid by employees and half by companies, arguing that a delay would help cool political anger.
“There are three big industries where the US has global leadership: financial services, media and technology. Introducing this 90 per cent tax is like taking one of those industries out the back and shooting it,” said a top Wall Street executive.
ONE of the 800lb gorillas in the room is that these “toxic assests” aren’t on the books valued in percentages but multiples of GDP. The Treasury hasn’t the resources to float that. The Fed has already floated at least 1xGDP in an effort to do just that. Nationalizing the mega-Morphed-banks isn’t considered the easy fix as much as the decisive fix: messier at the beginning but less hobbling in the long term. Many (perhaps 5-10 of the oft quoted “8000″ depending upon how things go from here) of the “banks” at issue aren’t only houses devoted to banking but financial leviathans mired in a disparate jumble of systems and “intruments” or fancy new transactions that are not understood at all by economists, nor the regulatory bodies. Finance isn’t strictly Economics. Many of these “instruments”/transactions like the CDS’s and such aren’t fully understood by economists. These “banks” need to be opened up and have the transactions examined in all their tendriled pathing. An example is the euphemistic “derivatives” moniker of the kind of transaction that has been the boogey-man in this mess, those aren’t the derivatives like we know derivatives. They’ve a questionable formation and an unimaginable flow through the financial system, a flow unknowable until they’re plotted by what’s turning out to be We the Debt Holder.
The economy is in a recession initially unrelated to the financial crisis. The recession wasn’t caused but it is being made harsher, more critical by the financial crisis. The recession did cause the financial crisis to come to a head earlier than it probably otherwise would have. The only “good” thing about this is that the crisis happened when it did and precluded McCain winning. So far that’s been the only good thing though. This isn’t a crisis that can be duct-taped. The US still has a debt cushion but it is not inexhaustible and it is shrinking. That debt cushion has to be husbanded and used decisively here on out.
My question to Ann was far from “derogatory”. It was a simple question. Ann declared us *done* (“toast” was the word) – seeming to indicate we have the equivilent of ‘cancer’ and we’re dead. I just asked her if Obama ‘cures cancer’
what she would think then ?
My EXTreme right-wingers? (the ones fond of the ‘N’ word) — I just ask them if they’ll then STFU. *L*
CoralineHart says:
21 March 2009 at 4:48 pm
Thanks fot that, we need more reasonable voices like that. like I said, I like Krugman but I think all the attention is kinda’ going to his head and he feels obligated to be the dissenting voice.
and PMichael: I absolutely will predict DOW 10,000 by the end of this year or Q1 2010. There is no doubt in my mind. People are ignoring the positive indicators (and there are plenty) in order to keep the doom and gloom scenario alive. IMO. It’s what sells right now.
Maybe I’m missing something here, but to me, the biggest long term damage that has been done (or perhaps thankfully the truth has finally been revealed) is that many in the financial industry – wall street, ratings companies, brokers, financial analysts, accountants – have all been shown to be wildly FRAUDLENT. That is, an ordinary person does not have any chance to invest in the stock market and not get ripped off. There is no way to get honest, accurate information.
All this money that changed hands, these “profits” that the “financial geniuses created” – where do you think the actual cold, hard cash came from that has been pocketed? (That is before the government started sending tax dollars).
Check your 401K and pension funds, – that giant sucking sound is the hard earned dollars of millions of us being sucked up into the top 2 to 5% of the wealthy – and this has been going on for years.
Until there is REAL regulatory action taken, you’d have to be out of your mind to put more money into the stock market – will it hit 10,000 by the end of the year? Hmm, thats where it was in 1999.
“For the record, I think the 90% tax passed in the House is not only onerous, but a case of shutting the barn door after the horse got out because they didn’t know there were horses in the barn to begin with.”
Agree.
It was a grandstanding stunt. I was happy to see that my Dem Rep, Vic Snyder, once again vote against BS stunt legislation.
I am still unsure why anyone is surprised that it was decided that it would be better to pay the bonuses rather then spend years and years and even more money in litigation?
The chaos with the “banks” is because of a structural failure. It’s like trying to cook a meal in a collapsed building. If you do find a stove in it, you either turn it on and nothing happens or you turn it on, get a flame and it explodes. These “assets” are not just foot traffic, they’ve become part of the financial structure, in some cases it’s feared become part of the very foundation of these institutions. The “banks” aren’t just banks, it’s why the FDIC has no authority or responsibility in this except at the margins. There’s not just a lack of deep understanding but even of enough understanding of what’s happened to even come up with a nomeclature for what these institutions have become, let alone delineate a competent regulatory chain of responsibility. And there’s the other side of this: the building codes failed.
There is no real way to restructure regulatory authority, to even know what and how to regulate, without getting inside the wreckage.
The financial collapse, it’s causes and ramifications wasn’t unforeseen. Many of the very people warning of the inadequacy of the response are the very same people who were ignored or dismissed when warning of the impeding collapse.
“Whats up with Pelosi’s demands that she get an Air Force jet for her and her entourage damned near every weekend?”
Speaker of the House is in line to be President if something happens to the President and VP. If she wants to fly, if she wants to go home, if she wants to go anywhere she has to fly military. It has been that way since 9/11.
Yes Coraline it was very interesting to read both yours and Autumnal’s posts. I agree with GeoT we need more reasonable voices in here once in awhile.
Thanks to both of you.
Betsy says:
21 March 2009 at 6:57 pm
oh thank you kindly, and most welcome