Blog on the Run: Reloaded

Tuesday, March 24, 2009 10:20 pm

Nobel Prize-winning economists agree …

… that the Geithner plan is a stinker. First Krugman, now Joseph Stiglitz:

U.S. Treasury Secretary Timothy Geithner’s plan to wipe up to US$1 trillion in bad debt off banks’ balance sheets, unveiled on Monday, offered “perverse incentives”, Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

I know you’ll find this hard to believe because I don’t show it, but here at Chez Blog on the Run, there’s already a lot of anger.

This is Obama’s plan. Sort of makes you wonder what he’d be pushing if he hadn’t campaigned for “change you can believe in.”

Relatedly, it seems Wall Street is insisting that the White House play ball with them if it wants to advance its plan.

The administration “is adjusting to find the right balance” between politics and policy, says Thomas Nides, chief administrative officer at Morgan Stanley. “The White House understands that to have a healthy Main Street, you need a healthy Wall Street.”

Shockingly, Nides gets it precisely bass-ackwards: To have a healthy Wall Street, you need a healthy Main Street. Those stocks, and the mutual funds and derivatives and all those other byzantine securities based on them that got us into this mess, are based on Main Street homes and businesses, not the other way ’round. And it’s way beyond time more people on both Wall Street and Pennsylvania Avenue started remembering that.

UPDATE: The Rude Pundit, who is not, to my knowledge, a Nobel Prize-winning economist, also weighs in:

The first bailout under Bush was a gift to the financial institutions, like giving flowers to your rapist. In as simplistic an explanation as possible, the Obama plan is to keep playing the same hand, with a bit more oversight, a little more in the way of loans, and some cash tossed at homeowners, and that’s a failure to recognize that the game has changed from poker to Go Fish. It seems like Obama wants to get only to second base with nationalization, but abstinence never works, man, never.

And Doctor Housing Bubble ain’t at all thrilled, either:

I’ll get into the details of the plan later in this article but this application pretty much sums up everything that is wrong with this program.  First, participating institutions must have the capacity to raise $500 million of private capital.  This is great for bailout participants that are deemed too big to fail since they’ll have that money easily accessible.  Next, they’ll need a minimum of $10 billion in market value assets under management.  This is important to keep out the riff raff of “small time investors” since only the big boys know how to mange money.  Finally, the deadline for the PPIP application is get this, April 10, 2009 at 5:00pm Eastern Time.  Bwahahaha!  They already know who is going to get the bids!  So much for that “open” market place notion.  They spent such a long time devising this plan and now they expect solid plans to come out in a little over 2 weeks?  The Treasury already has an idea who is going to play in this game on taxpayer funds and it is the same institutions that created this mess.

If you want a sense of who stands to benefit just look who posted massive rallies today:


Even though the market posted a “broad” 7 percent rally, many of these firms tripled that in the same day.  And don’t think this rally was somehow spurred by the retail investor sitting on the sideline.  You mean the unemployed ran back in to gamble in the stock market?  You mean to tell me that 50 percent of those in our country that are 1 or 2 paychecks away from financial trouble knew to invest in these firms that stand to benefit the most from this poorly planned investment program (the real PPIP)?  Amazing isn’t it?  This was a major gift to Wall Street.

I’m still open to arguments that this plan is a good thing for average Americans. Really, I am. But I ain’t feeling that.


  1. Fascism at it’s finest hour.

    Comment by RecycleBill — Wednesday, March 25, 2009 6:43 am @ 6:43 am

  2. …or as MSNBC quoted Duncan Black at Eschaton, yesterday:

    We’re so screwed.

    Comment by Fec — Wednesday, March 25, 2009 12:27 pm @ 12:27 pm

  3. Amen, brother! Amen!!

    Comment by John Hamilton — Wednesday, March 25, 2009 1:24 pm @ 1:24 pm

  4. From Brad DeLong: “…I suspect that in the end we will be driven down the road to some form of bank nationalization — and if that is where we are going Paul Krugman is correct to say that it is better to get there sooner rather than later. But unless Paul Krugman has 60 Senate votes in his back pocket, we cannot get there now. And the Geithner Plan seems to me to be legitimate and useful way to spend $100 billion of TARP money to improve — albeit not fix — the situation.

    It has the added benefit, I think, of laying the groundwork to convincing doubters of nationalization: “We tried alternatives like the Geithner Plan and they did not work” might well be an effective argument several months down the road.”

    Therein lies the problem – Krugman may be absolutely right but that doesn’t do a damn bit of good if you can’t get what he proposes through Congress. Given what DeLong sees as a choice between the Paulson plan, the Geithner plan and outright nationalization, which has the best chance of a) getting approval and b) working to at least some extent? I’m sure there are other alternatives beyond those three, but I’m not hearing them discussed.

    Comment by Tony Plutonium — Thursday, March 26, 2009 5:43 am @ 5:43 am

  5. My concern with the “do what’s politically workable” argument is that the administration has not attempted to expand the bounds of what’s politically workable (or even try to see whether the existing bounds already might be a little more generous than the administration thinks) by making what is actually a very strong case for nationalization. In other words, you should let what you want drive what you can ultimately live with, not vice versa.

    Obama’s biggest mistake with the stimulus package was not asking for enough right off the bat while making the case that the actual need was even greater than the amount he asked for. That way, he’d have had some negotiating room. I think he needs to lay out the case for nationalization (although I’d definitely call it something else — if nothing else, the previous administration fully rehabilitated the official use of Orwellian language), and then, only if necessary, start compromising backward in the direction of the Geithner plan.

    Comment by Lex — Thursday, March 26, 2009 9:33 am @ 9:33 am

  6. I’m speculating this entire thing was planned and that Washington is currently being blackmailed by the various AIGs of the world– the legacy of the Bush Adminstration.

    I fear there is nothing Congress and the Obama Administration can do.

    Comment by RecycleBill — Thursday, March 26, 2009 9:45 am @ 9:45 am

  7. I certainly agree with your second para in 5) above, Lex – the administration should have asked for a gazillion and a half dollars and let Congress feel like they were being all responsible and stuff by reducing it to a nice round gazillion.

    Comment by Tony Plutonium — Thursday, March 26, 2009 9:28 pm @ 9:28 pm

  8. […] Good God, where to start. Well, how ’bout with this: The fact that Geithner is doing the same thing Paulson is doing does not automatically mean that what Paulson was doing was right. […]

    Pingback by Well, if, by “national hero,” you mean “self-dealing jerkwad who got us into this mess in the first place” … and, by the way, does your mom know you’re smoking all that crack? « Blog on the Run: Reloaded — Tuesday, June 9, 2009 9:22 pm @ 9:22 pm

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