One thing I don't get about the people who are hating on the Geithner-bank plan:

[GarbagemanLB]

Krugman states point blank that the plan likely will not work, and I have seen numerous people on here saying it is all the work of the wall street powers-that-be so they would be off the hook financially. Some seem to be saying it is basically a guarantee that the plan will fail.

Uh...excuse me?

Do you have any idea how central this is to Obama's entire first term and his reelection chances? If there was a serious concern of it failing wouldn't they go some other route? He has some of the smartest minds in the world discussing the problem, and you people think that all they care about is bailing out the bankers/wall street and not that it actually WORKS?

Newsflash: They all have reputations and futures to worry about (most of all Obama).
Christ, some people see a fucking conspiracy in everything.


Anyway, let's continue posting every update Krugman has on his blog, since that is apparently the only economic expert in the whole fucking world who knows what to do.

:eyes:

[LakeSamish706]

1. All you need do is read a number of posts on DU and you will have answered your own...

question. Theres plenty of Obama, Geithner, and other criticisms right here on DU. Yep, the Dems. have a way of shooting themselves in the foot every damn time.

Seems pretty obvious to me that many Dems. want President Obama to fail as well.


I just posted this on another thread actually...

[PVnRT]

15. Yes, you've been trolling everywhere today

[LakeSamish706]

18. Right.... n/t

[EmilyAnne]

51. Responding = trolling? Interesting.

[chimpymustgo]

2. Jeffery Sachs doesn't like it either. Nor Stiglitz based on his earlier writing.

Sachs writing in HuffPo today:

Will Geithner and Summers Succeed in Raiding the FDIC and Fed?

Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth -- of perhaps hundreds of billions of dollars -- to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed). Soaring bank share prices on the morning of the announcement, and in the week of leaks and hints that preceded it, are an indication of the mass bailout at work. There are much fairer and more effective ways to accomplish the goal of cleaning the bank balance sheets.

A major part of the plan works as follows. One or more giant investment funds will be created to buy up toxic assets from the commercial banks. The investment funds will have the following balance sheet. For every $1 of toxic assets that they buy from the banks, the FDIC will lend up to 85.7 cents (six-sevenths of $1), and the Treasury and private investors will each put in 7.15 cents in equity to cover the remaining balance. The Federal Deposit Insurance Corporation (FDIC) loans will be non-recourse, meaning that if the toxic assets purchased by private investors fall in value below the amount of the FDIC loans, the investment funds will default on the loans, and the FDIC will end up holding the toxic assets.

To understand the essence of the giveaway to bank shareholders, it's useful to use a numerical illustration. Consider a portfolio of toxic assets with a face value of $1 trillion. Assume that these assets have a 20 percent chance of paying out their full face value ($1 trillion) and an 80 percent chance of paying out only $200 billion. The market value of these assets is given by their expected payout, which is 20 percent of $1 trillion plus 80 percent of $200 billion, which sums to $360 billion. The assets therefore currently trade at 36 percent of face value.

Investment funds will bid for these assets. It might seem at first that the investment funds would bid $360 billion for these toxic assets, but this is not correct. The investors will bid substantially more than $360 billion because of the massive subsidy implicit in the FDIC loan. The FDIC is giving a "heads you win, tails the taxpayer loses" offer to the private investors.

Specifically, the FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds. The FDIC subsidy shows up as a bid price for the toxic assets that is far above $360 billion. In essence, the FDIC is transferring hundreds of billions of dollars of taxpayer wealth to the banks.

With a little arithmetic, we can calculate the size of that transfer. In this scenario, the private investors (who manage the investment fund) will actually be willing to bid $636 billion for the $360 billion of real market value of the toxic assets, in effect transferring excess $276 billion from the FDIC (taxpayers) to the bank shareholders! Here's why.

-snip-

The bank shareholders, however, come out $276 billion ahead of the game, while the FDIC bears $276 billion in expected losses! This transfer occurs because the investment fund defaults on the FDIC loan when the toxic assets in fact pay only $200 billion, an outcome that occurs 80 percent of the time. When that happens, the investment fund is "underwater" (holding more in FDIC debt than in payouts on the toxic assets). The investment fund then defaults on its debt to the FDIC. The FDIC gets $200 billion instead of repayment of $546 billion, for a net loss of $346 billion. Since this outcome occurs 80 percent of the time, the expected loss to the taxpayers is 80 percent of $346 billion, or $276 billion. This is exactly equal to the overpayment to the banks in the first place.

-snip-

Much more at:


http://www.huffingtonpost.com/jeffrey-sachs/will-geithn...

[EmilyAnne]

52. Where does the idea that Geithner is going to buy the assets at "inflated" prices come from?

Does his plan claim an exact percentage value that the assets must be purchased at in relation to the value on the bank books?
I thought that the value was to be determined by bidding.

[smoogatz]

56. In many cases, the "assets" are worthless.

So whatever's paid for them is inflated by definition. That's the problem: Geithner's essentially allowing banks to sell another trillion dollars'-worth of bad loans to the taxpayers at asking price--but not giving the taxpayers any share in the now solvent banks. All we get are a bunch of defaulted mortgages, essentially--and the only way we get our money back is if the real estate bubble re-inlfates. Wheeeeee!

[Teaser]

57. Brad Delong does like it, though.

.

[DJ13]

3. Obama may trust Geithner

But that doesnt mean that Geithner (and Summers) isnt looking out for his long time friends on Wall Street instead of looking out for Obama's best interests.

[GarbagemanLB]

5. You do realize Obama's interests ARE Geithner's interests? They are sort of tied together...

[HamdenRice]

7. I'm worried they are not. It may be Geithner is a young man looking toward work after Obama

After all, that's what all his mentors did after the Clinton administration. I'm worried that he is coddling Wall St because after working in DC his job prospects and the future of riches may depend on whether he nationalized the banks or gave them a monstrous gift in the form of his public-private rescue plan.

In this way, I don't think their interests are aligned very well.

[DJ13]

9. No, they actually may not be the same interests

Geithner has actually proposed an expanded Paulson plan.

Can you seriously say you think any plan by Paulson would serve the American public's interests instead of just being another giveaway to the big Wall Street types?

[HamdenRice]

4. It's a terrible plan. Geithner is worse than Paulson and is dragging Obama down

I realize it makes sense to think that smart people should be able to come up with a good solution. But a few things are becoming clear. Geithner either isn't very smart, or is so constrained by ideology that he can't see what's best, or even worse, is trying to protect the economic interests of friends and former colleagues.

It really is a terrible plan, and it's hard to understand why Geithner keeps pushing it.

At least Paulson could be terrified into trying to do the right thing. The first TARP bailout -- the purchase of preferred stock and warrants in the bank, in a "I'm going to make you an offer you can't refuse" setting -- was actually a good first step.

The crap that Geither keeps coming up with is stupefyingly bad. Obama needs to fire him or pretend he isn't there by working around him and get some other smart people to come up with a rational plan.

[high density]

21. "It's a terrible plan"

What is the good plan? Every option Obama and Geithner have been dealt is a terrible one.

Here are the options:

Treasury does their toxic asset plan and then we see where we stand

Krugman gets his way and we nationalize the banks, then we handle the toxic assets

We do nothing and likely replay 1990s Japan or the Great Depression.

The cost of any option is substantial.

[w4rma]

6. Bush had some of the "smartest financial minds" under him, also. And they got us INTO this mess.

The folks that Obama hired to fix this mess would be more at home in a Republican administration.

[SunsetDreams]

10. Explain your Obama people=Bush people

[w4rma]

11. Geithner and Summers are DLC Rubinites.

Pro-'Free' trade, pro-Wall Street, could care less about Main Street.

[SunsetDreams]

13. And that makes them one and the same how?

[w4rma]

22. Neel Kashkari, the Interim Assistant Secretary of the Treasury for Financial Stability, is the Bush

holdover, under Geithner, that I was thinking of. Not Geithner, himself. Geithner is just another Rubinite like Summers.

[terisan]

8. It is a plan that flows all assets to the big corporations in the long run and they will reward the

whomever gives them massive power with the money and backing to win elections. Bush would be doing the same.

So called smart mind may be in the service of themselves.

I'll go with Stiglitz and Galbraith.

[SunsetDreams]

12. Bush would be doing the same?

You know I am really getting sick of this Obama/Bush reference on this board!

[terisan]

26. You think Bush would not bail out Wall Street and the Big Banks and have the

taxpayers pay for it?


Isn't that what he got the Dems to do last Fall? They gave Paulson full authority to do whatever he chose. A massive transfer of their own responsibilities to us.

[Kurt_and_Hunter]

14. So now Obama cannot be wrong about anything "important"?

That's your argument... this is important to Obama so he cannot possibly be wrong about it.

How do you explain all the times people have been wrong about important things throughout history?

[GarbagemanLB]

17. No, he can be wrong. However, I would say he deserves a little fucking leeway considering the impact

this decision will have on the future of his political career. That is all.

[Kurt_and_Hunter]

25. Oh... it affects his political career? Oh, well that's different.

Sorry, I didn't realize that the greatest international economic crisis of our lifetimes affects president Obama's career!!!

Geez, why didn't he just say so?

[PVnRT]

16. Obviously, Obama cannot have a plan that wouldn't work

:eyes:

And people say there's no hero worship around here.

[GarbagemanLB]

19. Oh, there is Obama hero worship AND Krugman-worship going on here right now.

[LakeSamish706]

23. Why don't you give it chance to see if it will work, what makes you the expert on this? n/t

[w4rma]

24. Because the plan we get now may be the only plan we get.

And, frankly, I don't want to reward the people who sunk the American economy. So, no, I am not waiting to "see if the plan works", especially when I know it won't work as advertised.

[LakeSamish706]

28. Well you can bitch as much as you like about it on this board, but that isn't likely...

to change President Obama's mind much.

[AllentownJake]

30. I don't really have an option about giving it a chance

now do I?

It works I admit I was wrong if it fails I get to be smug in the bread line.

[AllentownJake]

20. Yes and I'm sure Hillary believed Mark Penn's advice would cost her the Presidency

I'm also sure Mark Penn thought his advice was awful

Smart people sometimes take and give bad advice

:shrug:

[LakeSamish706]

31. Your absolutely right... So bitching about Obama on this board is not going...

to fix anything.

[AllentownJake]

32. Whoever said I was trying to fix anything?

I complain about girls I date sometimes. Doesn't mean I think something they do is going to change.

[Larkspur]

27. Larry Summers and Timmy Geithner are Robert Rubin disciples

It wasn't just Republicans who deregulated the financial industry. Under Clinton's Admin, Robert Rubin along with his disciple Larry Summers were responsible with gutting the FDR era Glass-Steagal act. I don't trust Geithner or Summers because they are Wall Street toadies and as we have already seen, Wall Street doesn't give a dam about Main Street.

[sharp_stick]

29. Economists are a funny bunch

put two of them in a room and they'll disagree on the color of the walls. It seems they always break into two groups where there is right and wrong and God help you if you don't agree with their POV.

[girl gone mad]

38. 95% of the economists I trust..

have lined up against this proposal.

[nichomachus]

33. Pretty much the same argument you used to see on Free Republic about why

we should trust Bush -- even down to the gratuitous slam on Paul Krugman.

[dionysus]

54. Krugman is a God among men.

[girl gone mad]

34. The smartest minds in the world???

You're joking, right?

These are the same fools who are responsible for much of the deregulation that caused this mess and then later promised us it was "contained" and then later said the $700B TARP would fix everything.

Smartest guys in the world..

:rofl:

[galloglas]

35. Krugman said something other than that

Krugman is arguing that the TARP will not solve bank credit loosening problems. As Geithner stated, it is not intended to do that. It deals with one aspect of the banking problem but not the loosening of credit itself.

I really wish people would pay attention to the difference. The proposal today will help everything and is not a handout to the bastards that created these "assets". It all depends on what the government will pay for them. Additionally, since they have no other market for them, the creators and buyers of this mortgage garbage will either have to take that price or choke on it all.

[galloglas]

36. Krugman didn't say that... He said this...

Krugman is arguing that the TARP will not solve bank credit loosening problems. As Geithner stated, it is not intended to do that. It deals with one aspect of the banking problem but not the loosening of credit itself.

I really wish people would pay attention to the difference. The proposal today will help everything and is not a handout to the bastards that created these "assets". It all depends on what the government will pay for them. Additionally, since they have no other market for them, the creators and buyers of this mortgage garbage will either have to take that price or choke on it all.

[Kurt_and_Hunter]

37. BS

It is a hand-out.

That doesn't invalidate it, but there is no reason to lie about it.

[galloglas]

40. Watch his GD interview on McNeil Lehrer if you don't get it.

And, best be careful calling someone a liar. Particularly when one is a fool.

[Kurt_and_Hunter]

45. Gee, did he say "this is NOT a handout"? Sorry I missed that!

You said (not Krugman, you) that it is not a hand-out so you are either a liar or an absolute idiot or, likeliest, both.

I am sorry for not allowing the option that you were not lying but are simply THAT stupid.

Government assumes risk in exchange for people getting more money than they could possibly get if not backed by the government = hand out.

[galloglas]

58. Kinda comforting...

being spoken about this way, "so you are either a liar or an absolute idiot or, likeliest, both.", by a Fool.

[girl gone mad]

39. Once again, you've got your bailouts mixed up.

We're not talking about TARP.

[smoogatz]

41. How about Bank of America's chief investment strategist?

March 23 (Bloomberg) -- Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ay0Xgdn2tUK8&refer=home

It's a short term fix designed to allow the big funds to dump essentially worthless bank stocks at something greater than zero. Even the banksters are admitting it.

[4lbs]

42. I like the way President Obama and Secretary Geithner are doing things.

That's why I've invested $15,000 of my own money into the 4 major "bailed out" financial institutions.

I'm wondering how those that vehemently dislike Geithner and the plan are approaching backing up their dislike with actual money. In other words, invest in it's failure, so that if it fails, you make money.

For me, if the plan works, I'll make 10 to 20 times my investment in a few years. If it doesn't, I'll lose most or all of my invested $15,000.

[girl gone mad]

44. Probably long TBT..

or using some other hedge against a decline in treasuries.

[dave_p]

43. Don't overdramatize

No, this isn't "central to Obama's entire first term and his reelection chances". This is an opening shot. The Admin has yet to get to grips with this issue, like the rest of the world. This is an astonishingly rapidly-evolving situation (compare any past recession), and Obama's team hasn't caught up yet: that's not surprising, and nothing to be ashamed of so long as they rectify the oversight pdq.

To hell with the drama, we're still well within the first hundred days, and even FDR had 3 1/2 years of this shit to prepare him, rather than six months. This is not it. We're nowhere near where this is taking us. Obama has the sense not to commit everything at this stage, and we need to try sittin' back and waitin'. So long as the real stuff comes along before too long.

[depakid]

46. This basically reflects the ideological schism that developed in the Clinton administration

Between the Rubin & Summers camp on the side- and people like Robert Reich and Joseph Stiglitz on the other (reflected by others today such as Dean Baker, Paul Krugman, James Galbraith, etc.)

The former doesn't have much of a track record of success- the latter's ideas have essentially been dismissed.

[alcibiades_mystery]

47. It's a culture of paranoia: it's impossible to see the good faith in those with other positions

You're quite right that it leads to a series of incoherences. These people are dumb. Quite literally. They're not smart enough to understand policy differences, so they make it about personalities, since little village gossip and soap opera style characterization is all they can process. So, it's not that Geithner is actually attempting in good faith, like Krugman, to device a solution to this crisis. No, he must be a villain acting as an accomplice to "Wall Street criminals" in order to make the story sufficiently melodramatic. Like I said, little storylines for little minds. Any claims that this board is "smarter" than the general population have been fairly decidedly put to rest this past week. Indeed, the public at large seems to have even *less* regard for these little character melodramas than DU, which would make the general public *more intelleigent* about politics than many on this board, and maybe even a majority of this board.

[smoogatz]

48. It comes down to motivations.

If Geithner's plan has no hope of actually succeeding, as Krugman says (and it seems highly unlikely that it'll do anything but buy a bit of time for the insiders to dump bank stocks while the suckers buy them up), then what are his motivations in proposing it? Who does he really work for--the taxpayers, or the stockholders? It's a valid question, not about personalities but about whose interests Geithner really represents. The people who've been right about the current collapse (Krugman, Roubini, Black, et al) all pretty much concur that Geithner's plan won't solve the problem, and in fact misstates or misunderstands the problem--which is not a short-term credit crunch but the long-term and very real insolvency of much of America's banking system.

[alcibiades_mystery]

50. No, it doesn't

1) Krugman doesn't say it has no hope of succeeding. I heard him specifically on NPR today saying it might succeed.

2) His motivations, if we weren't living in a paranoid culture of soap opera trained numbskulls, is to solve the problem. Why this isn't obvious to everybody is the worst effect of conspiracy driven small-minded stupidity. I believe Krugman is making his argument in good faith. I also believe Geithner is pitching his plan in good faith. The fact that you don't is just sad.

Geithner's plan is one prong in a multipronged approach, some of which is needed immediately, and some of which will take more time to sort out. The second effect of comnspirtacy driven stupidity is that every problem has an automatic and magical solution. In this case, we need both short-term credit freed up and longer-term systemic changes. Why these two should be irreconcilable is yet another mystery. Indeed, I think what's going on now will more effectively set up some of the longer term struggles (re-regulation, increased top marginal rate, etc.) by linking the admins position with those of possible opposition to those changes. Of course, that's long-term, and policy, and not some easy villain for fools to latch on to. So whatever, right?

Let's not forget that the Securities and Exchange Act of 1934 - the real teeth of the New Deal regulations on Wall Street, wasn't passed until, well, 1934. It takes time to pass coherent regulations through the Congress. But I'll tell you this: a month and a half ago, Erin Burnett was on CNBC railing against Obama for trying to "control the ways companies reward success" with the cap on executive compensation. She wouldn't DARE make the same argument today, and, in fact, Geithner called it "rewarding failure" to her face today, to nary a peep. What we're seeing is the accelerating collapse of all the traditional arguments against regulation and tax increases on the top marginal rate - arguments that took 30 years to be cemented into the culture. So, long term, where's this trajectory going. I think there's more to the timing of these moves than the Geithner-obsessed can see.

Krugman is certainly a genius on economics. But he doesn't hold a candle to Obama as a keen observer and transformer of political dynamics. It's easy to nitpick a work in progress. Harder to get shit done, where shit means up-ending 30 years of neo-liberal economic domination. You can overturn the apple cartv and kill all the lawyers, sure. But you can do it other ways, too. That's what I think we're seeing.

[smoogatz]

55. You can be dismissive all you want

but it's hard to fault people for being skeptical of any plan that puts the foxes in charge of the henhouse, especially given our recent history. And it's hard to make the case that when Krugman says the plan "fills him with despair" that he means he thinks it has a realistic chance of working. And nobody's nitpicking a work-in-progress--you've got very smart people who've been right about everything leading up to the current disaster who are saying loud and clear that bailing out stockholders and bank execs is the wrong way to go. Who am I supposed to believe? The guys who've been right all along, or the guys like Geithner who helped to create the problem? Honestly, I hope I'm wrong. We'll see.

[stillcool]

49. It's all about the soundbyte..

used to attack. There is so little about the various plans that are being floated with any kind of clarity. It is Geithner and Obama suck. No mention of the choices, what the risks are of each choice, or the consequences of those choices. There are a couple of DU'ers that can explain without choosing a side to beat the other over the head with, but that is rare.

[Pale Blue Dot]

53. Then invest! Now!

You'll make tons of money!

I'm bookmarking this thread and I'll check back with you in six months, OK?