Larry Summers says Krugman is right about Geithner Plan not solving issues in the banking system!!!

[Better Believe It]

President Obama's chief economic adviser, Larry Summers, defended the Geithner plan, saying it is not designed to be a cure all for the banking system.

"What Mr. Krugman did today surprisingly was he took an action in one area — strengthening the capital markets — and he said it didn't solve another problem — the issues in the banking system. He's right about that. But it wasn't intended to," Summers said.

So this latest bank bailout plan is not intended to solve "the issues in the banking system"?

Oh.

I see.

It's just a badly needed handout to the Wall Street crooks who caused this crisis!

http://politicalticker.blogs.cnn.com/2009/03/23/summers-beats-back-at-krugman/

[Barack_America]

1. Um, I believe Summers is referring to regulation.

And no, the bank bailout was not designed to address that.

[Larkspur]

2. Summers and Geithner need to be fired

Summers is just awful. He's a Clintonista who championed deregulation of Wall Street.

[Political Heretic]

3. I have zero confidence in Summers or Geithner

[dave_p]

4. Adult shit

He's right about that. But it wasn't intended to.

Sounds like fair comment to me. I think we're still having a hard time acclimatizing to so much adult shit from the Admin. Yep, the package sucks ass. No, it's not the end. We'll all be a bit older and hopefully wiser before we get there.

[jaxx]

5. This is like deja vu

[Thrill]

6. He's talking about regulations. Thats clear if you watch the interview

[Better Believe It]

20. Didn't see the interview. So the CNN article is misleading?

[Thrill]

21. As usual

[Occam Bandage]

7. Yes. The bailout plan is not intended to be regulatory. Those are different things.

I suppose it's too much to ask that people bother watching/reading what they link to.

[CTLawGuy]

8. the plan is meant to unfreeze credit markets

but don't let that fact stop the outrage.

[Larkspur]

9. The plan is to privatise profits and socialize risks and losses

The taxpayer is the loser and the hedge fund managers who helped create this mess are winners. They should be going to jail.

[EmilyAnne]

11. Whose profits, in your opinion? Investors in the "toxic assets" or the banks?

Just would like to know your opinion.

[CTLawGuy]

14. they are winners?

I don't think they will be profiting on these MBSs. The point is to put money into the credit markets, money that these troubled MBSs were supposed to be able to provide until people lost all confidence in them.

Even if you nationalize the banks, the taxpayers will STILL have to front a ton of money in order to replace the lost credit, and will have to hire and pay a wall street banker to run the bank on behalf of the government.

Finally, since the subprime default rate is only about 15%, over the period of decades that the government will have to hold these assets, the government will get most of the money back-not all of it, but most of it as the borrowers slowly repay the loans.

Finally, this crisis was a result of stupidity, not criminality. The whole MBS scheme was predicated on the notion that house values would always continue to appreciate--a silly notion.

[Hansel]

18. Sigh. I don't think there's much chance of that. n/t

[MannyGoldstein]

10. Summers Engineered Deregulation And Almost-Free Trade With China

And worked for the second-largest hedge fund on the planet.

I'm glad that he's now totally changed his behavior and will help the common man.

[jefferson_dem]

12. Oh please.

You've spun yourself silly here, trying to serve up yet another anti-Obama "gotcha" thread.

[Avalux]

13. Good heavens. I watched the interview and I'm as frustrated with you

as Summers was with Blitzer. The specifics that were announced today are not for the banking system; they are to buy up bad assets. The Obama Administration is announcing fixes in parts - the parts are not interchangeable. This is a multi-faceted problem requiring a lot of different approaches and solutions.

Summers also said he wished Krugman would have waited until today's announcement to write his column and I agree. I will be interested in what Krugman has to say next.

[alcibiades_mystery]

16. Krugman's argument is simple: he doesn't think the assets will produce the prices

in the long or short term that would make the guarantee lay-outs reasonable for the taxpayer. That may or may not be the case. Krugman admits that it is possible that public-private partnerships can draw value from the assets.

[Avalux]

17. Summers said the only way taxpayers would lose anything -

is if the private sector lost everything first. He explained that they are making a public-private partnership attractive and have private investors interested but that it isn't lopsided; taxpayers won't lose out on the deal. I wish I had a firmer grasp on how something like will be set up.

[alcibiades_mystery]

23. Taxpayers will lose to the extent that they guarantee the assets

But the guarantee only kicks in if the thing dumps. It's structurally impossible for the private investors to gain and the taxpayers to lose. The risk - and there is real risk - is designed to incentivize participation, not to "privatize profits and socialize risk." The incentive is that the private investors only have to put in 7% of the "value" to get in on the assets. But if the assets lose, they still lose part or all of that 7%. If the private investors profit, the government profits. If the government loses, the private investors also lose. There is no inverse relationship between private gain and public losses under the plan. They don't make money while the guarantees pay the losses, so that's just incorrect.

[Avalux]

24. Thanks!

Your explanation was very helpful. :hi:

[Better Believe It]

19. So a banks bad assets have nothing to do with the banking system

Sure.

Thanks for the information.

[alcibiades_mystery]

15. The problems in the banking system will have to be dealt with by regulations

Regulations require the passage of laws through the US Congress.

Just as a bit of context, Roosevelt didn't get the Securities Act of 1933 passed until late May 1933. The real teeth of the New deal Wall Street regulations came in the form of the Securities and Exchange Act........of 1934.

The Geithner Plan won't solve the issues in the banking system. It will, at best, ease the intense pressure on the banks in order to produce capital flows. The banking system as a whole must be dealt with by new regulations, and that will require participation by the legislative branch.

[Rosa Luxemburg]

22. at least Wall St was a bit more confident today after the news

[LittleClarkie]

25. Your numerous exclamation points provide a compelling argument

I think you misunderstood, as others in the thread have tried to explain. Or perhaps you wanted to misunderstand.

[dionysus]

26. you're as consistent as death and taxes, i'll give you that...