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.


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