Re: Geithner Plan

Of course Wall Street likes it. It’s a textbook example of privatizing profits and socializing risk.

I keep asking the same question and it goes or Krugman as well:
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If the Geithner plan won’t work is it because the banks benefit too much or is it because following his plan will make the financial system fail?
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Let’s at least separate ideology from the policy because I’m having trouble understanding the criticisms because they lack transparency about the winners and losers as well as what are the criteria for determining the winners and losers. Tell me what is your priority for the plan. Should the goal be to fix the old system or create a new financial system? And if the choice is a new system then what are the goals for the new system, is it reducing the income gap or preventing future meltdowns?
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How are you judging success?

Dee beat me to it. I don’t see Krugman or anybody else telling me exactly why it will fail, only insisting emphantically that it will.
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Far from the expert in this field, maybe somebody can help me. The main difference here, that I can see, is with the Geithner plan the Gov. is going to subsidize the purchasing of these bad assests. Is that decision so much worse than the Gov. just paying for these assets themselves? It seems that would necessitate more up front capital and risk on the Gov. part.
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Also, is Krugman and others concerned that we are not talking enough control of these banks in question? That, to me, seems to be the greater issue.
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And PD, I can’t seem to get away from that sentiment myself lately and it’s infuriating. But who could take private losses of this size? When you’re playing with other peoples money, you can’t afford to take the risks yourself. Maybe that’s what they mean by changing the fincancial system itself?

Ha, “emphatically”.
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I don’t need no stinking preview!

If Krugman is the great wizard of oz-why is he just writing about it & not running the show?
It is so much easier to sit back in your lazyboy & give the thumbs up or down.
Krugman is sooooo liberal-that all he wants to see happen is the banks nationalized-anything less is wrong in his eyes. So like the rest, he comes with his own agenda…with all this whining-someone call a wambulance!

Wall Street likes it now. At this moment in time.

This is precisely the reason I ask the question. I don’t want to assume that Krugman is on the left so he must be advocating nationalization. I’m on the left and I don’t know enough about the subject to know whether nationalization is a good idea. What I do know is that nearly half my country would sooner gnaw off their right hand than have it trapped in a nationalization trap.
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What I want to know is exactly what these folks are advocating or against and why. If Krugman or anyone else for that matter supports nationalization, tell me what are the benefits to this approach?

Paul Dirks
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Actually while I agree that it does socialize the risk, the tax payers will also participate in the profits.

Home sales up in February!

Complicated problem. Wall Street liking it may not mean it is the best plan on dealing with the substance of the financial rot problems, but it creates an optic that the msm will broadcast as “Wall Street Soars on News” which helps creates public confidence that is really a big part of what is needed to turn things around. The converse of course is a plan which Wall Street doesn’t like that spawns “We’re All Gonna Die” headlines and chatter and endless Repugs and ConservaDems on our Teevee. Lotsa moving parts, all of them matter. Yglesias has a nice post on this: Kinds of Confidence and a good explanatory piece: The Market in Toxic Cars. I don’t envy the people who have to try to solve this and, despite all of the doomsaying by Krugman and atrios, I will continue to give them my nervous support
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Related topic – I do not want the Obama administration to become an Orwellian Clear Skies clone. Enough with the "legacy loans and securities" already.

They write that “the government will provide the overwhelming bulk of the money — possibly more than 95 percent…”–that is true, but they don’t say that the government gets 80% of the equity profits and what it is owed the FDIC on the debt tranche. That what Andrews, Dash, and Bowley say sounds different is a big problem: they did not explain the plan very well.

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Brad DeLong

wvng nails it. The optics matter. Increased home sales and a positive market response to the Geithner plan make doomsayers in the media and among the GOP appear short-sighted.
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Obama’s Tonight Show appearance may have been ridiculed by some, but his calm approach to a severe problem is just what is needed. A large audience was reached. The 60 Minutes interview addressing Cheney’s stupidity was also important. A stable hand at the helm is paramount.
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The United States will slowly come out of this economic crisis. (Yeah, I know that statement is based on no data).

If Krugman is the great wizard of oz-why is he just writing about it & not running the show?
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YEAH! SCREW THAT GUY! HE’S NOT ON OUR SIDE!

Regarding the 60 Minutes interview, Cole is must reading this morning: Mission Accomplished. Highlights the very simple truth that we really need to deal with the rot in the msm that makes solving real problems immeasurably more difficult.

The United States will slowly come out of this economic crisis. (Yeah, I know that statement is based on no data).
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Actually, that statement is based on data.

The question from the 60 Minutes interview that the MSM is missing is, Did President Obama Accuse Dick Cheney of Torture?. I asked that question over at Greg Sargent’s blog right before I decided to do a post on it and Greg ended up posting on it too.
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http://theplumline.whorunsgov.com/probes-of-bush-administration/did-obama-accuse-dick-cheney-of-torture/#comment-6740

wvng
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I think the problem is that MSM is out of it’s depth on many issues. They don’t understand economics, for example, and thus fall back on stenography or movie script style coverage. The overall information imparted is identical to that of sports analysts predicting which team(s) could acquire the disgruntled Denver Broncos QB.
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Thus they are left to focus on a bowling joke and a laugh. Fortunately most people ignore the MSM stupidity. Unfortunately, as more newspapers falter, we will be left with political reporters giving us more Morning Joe style “News we can’t use”.
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stuart, thanks for the link.

Cutler should stay put! Bring back Shanahan!!
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Sorry, that’s a subject I’m much more informed about.

bonddad at Dailykos was pretty positive about the plan.

Here comes the false equivalence.
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Note the “criticism from the left and from the right” language.
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Sound familiar?

“Here comes the false equivalence.”
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Ha! That idiot actually thinks that both of these sound equally crazy:
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“As economic historian Brad DeLong noted over the weekend, the world is divided into “people who are strongly opposed to the Geithner plan because Tim Geithner is a socialist who wants to destroy American finance” and “people who are strongly opposed to the Geithner plan because Tim Geithner is a corrupt plutocrat who wants to give Americans’ money to the princes of Wall Street.”

is it reducing the income gap or preventing future meltdowns?
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You ask that like it’s an either/or propostion. I’m beginning to think that if you think of wealth like you think of heat in thermodynamics, all sorts of insight comes tumbling out.

Jerome at DailyKos gets a huge part of this that’s missing from what little coverage can be spared from bonus clawback right.

Jerome at DailyKos gets a huge part of this that’s missing from what little coverage can be spared from bonus clawback right.

Ignore the first non-link, folks. Click the second post. Sorry.

sheperdwong
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If thats all they included in the article then it doesn’t accurately reflect what Brad DeLong actually posted.
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The World Is Divided into Four Groups of People
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This weekend, at least, the world appears to be divided into four groups of people:
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People who have no opinion of the Geithner Plan because they have not been briefed on it…
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People who are strongly opposed to the Geithner Plan because Tim Geithner is a socialist who wants to destroy American finance…
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People who are strongly opposed to the Geithner Plan because Tim Geithner is a corrupt plutocrat who wants to give Americans’ money to the princes of Wall Street…
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Lucien Bebchuk and me…

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It was supposed to be a tongue in cheek post not something for someone to take and run with it as DeLong gave credence to Dr Krugman’s argument in a separate post but said he disagreed.

538 compares pre- and post-AIG bonus outrage approval ratings for Obama and finds little impact of the bonus flare up on Obama’s numbers.
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Are people disregarding MSM outrage spasms, or are they just hoping Obama is headed in the right direction?
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http://www.fivethirtyeight.com/2009/03/is-aig-bonus-blowout-hurting-obama.html

Thank God they’re having no effect on Obama’s numbers!
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That’s because Obama is still seen as the cavalry.
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That’s why they can’t wait until we find out that we need another $750 billion again to assert themselves. At this point, “bailout” isn’t identified with “Obama”. At this point, “bonuses” isn’t identified with “Obama”. At this point, “depression” isn’t identified with “Obama did X”.
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I don’t believe that this state of affairs can last indefinitely. Can anybody refute that?
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I agree that there is a political component to Krugman’s arguments. I don’t especially like that so much of his emphasis is on the politics, because I think that Obama’s team are vastly superior to his judgment in that department, but it is a compelling argument in this particular case, nonetheless.

SG:
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You’re totally right.
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That piece by Andrew Leonard is dishonest in that way, as well as being dishonest in others.

Whether the public will tolerate “more of the same” (bailouts) will depend on whether 1) people continue to see Obama as the only alternative because the GOP has no plan, 2) companies begin hiring blunting unemployment numbers, 3) the market stabilizes.
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If the GOP and/or Conservative Democrats block spending and the housing numbers, market level, or unemployment rises, Obama can say “I told you so”

Krugman is not advocating nationalization. Krugman is advocating doing the same thing with the zombie bank holding companies as we have done (successfully) in the past with zombie banks: Send in the FDIC (or if you prefer, create a new agency with the same assignment as we gave the Resolution Trust Corporation in 1989). Send bank examiners, not cash.

Somepeoplelikeit says:

“Dee beat me to it. I don’t see Krugman or anybody else telling me exactly why it will fail, only insisting emphantically that it will.”

Okay, here’s a few reasons why it won’t work.

1). The “private” side of this Public/Private fund aren’t Private Equity and Distressed Debt funds, they’re big asset managers like PIMCO and Blackrock in addition to owning several hundred billion dollars worth of CDO’s, Credit Default Swaps and other complex structured products. They just happen to be the counterparties on a vast array of these troubled assets. In otherwords, they stand to lose in the event of a default. This is a perfect solution for them, they get to made whole for the poor risk management decisions they’ve made in the past the government swallows the bulk of their potential losses. Why no Private Equity and Distressed Debt players? Because they don’t relish the idea of losing a dollar even though the government stands to lose 10. They have no incentive to participate.

2). Current bank management stays in place. This, more than anything else, is what’s wrong with Geithner’s approach. He’s a product of the Wall Street culture. His job at the NY fed was to cultivate relationships with senior Wall Street managers. He did that only too well. Now, what’s needed is new blood, new capital and new ideas. Current bank management has failed. These guys have collectively earned hundreds of millions of dollars over the past 8-10 years and their one and only job has been to keep the firms solvent. They failed. Until someone takes a flame thrower to current management at Citi, Morgan Stanley, BofA and a few others, we will never get a return to normalcy. Geither thinks these guys are all indespensible. I forget who said it but George Will used the quote on Sunday, “the graveyards are full of indespensible men”.
There are plenty of bright people inside and outside of Wall Street who are quite capable of running a big broker/dealer or a money center bank. Geithner and his buddies don’t think so. The market will eventually proven them wrong. The only unknown is how much taxpayer dollars go down the rabbit hole between now and then.

SG:
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I read DeLong’s piece. My point was exactly that Leonard didn’t get it. He actually thought it sounded like a perfect Village “centrist” dream construction: crazy right + crazy left = sane centrism. He had no idea that Geithner “the socialist” is actually a crazy notion but Geithner the plutocrat is…reality. Also, as davethompsonmpls points out in 31, he uses a complete straw man to attack Krugman’s proposal. Another clueless, dishonest, “centrist” jerk.

Dee,

“What I want to know is exactly what these folks are advocating or against and why. If Krugman or anyone else for that matter supports nationalization, tell me what are the benefits to this approach?”

Nationalization is not really an option. It’s not like anyone, at least anyone credible, is advocating the government own and operate major banks. What they really mean is bankrupcy and recievership. In this scenario, shareholders get wiped out, the fed takes over the bank, guaranteeing deposits, forcing a haircut on derivative counterparties and selling off the pieces and giving the proceeds to the bondholders. This scenario has some major benefits. First, it forces derivative counterparties to share the pain. That’s a requirement for any fix to work. Second, it kills off the failed management of the past and replaces the “too big to fail” entities with smaller, more focused and less burdened companies. The downside is nobody knows what will happen to the markets in the event of this scenario. The initial reaction will likely be panic but that should be followed by a somewhat orderly process of work out agreements between the buyers and sellers of troubled derivative contracts and their counterparties.

Karen Tumulty asserts, with no evidence, that “Wall Street” likes Geithner’s plan. Since the 2008 election, has the stock market gone up or down? Given Karen Tumulty’s assertion above, what can we assume would be her conclusion on Wall Street’s likes or dislikes of the 2008 presidential election? Can we safely assume, given her political preferences, that she would not conclude that Wall Street dislikes the 2008 election results, despite the collapse of the market following the 2008 election?

First of all let me say that I don’t know anything about economics, so I don’t know if this is a good plan or not. It’s not my area of expertise. But I think that one of the problems for Geithner has to do with the American pysche, not Geithner himself. In one breath, we say we want a politician who is not a snake oils saleman. Someone who can lie to us right in our face, and be doing dirty behind the scenes (i.e. Williams Jefferson, Bill Clinton, Dick Cheney, GWB, Charlie Rangel, etc). But in reality, whenever we are faced with such a candidate, we inevitably dislike them, i.e. “he doesn’t seem to know what he’s doing”. “He doesn’t seem confident”. That’s what we do.

Geithner’s problem is that is he was not nor was ever a career politician. For most of his life, he was a civil servant he was not in the public eye. So all of a sudden he is thrust into the political spotlight, and because we like our politician “polished” no matter how much we hate, “fake ass” politcians, that’s what we Americans seem to like and want in our politicians. A polished face, and nothing else can fool us for 8 years (and sadly, the last 8 years, we didn’t even have a polished face in the WH). Obama for good or bad, has lived much of his life as a politician and a public face. He is obviously comfortable there, so any and all of his administration compared to Obama will be lacking (see some earlier comments during the primary about Axelrod, Gibbs, Burton, et al).

As I said, I don’t know if Geithner’s plan is right or wrong, people here and elsewhere on this blog with more expertise can tell you that, but I do think, the guy deserves a chance. He like Obama has only been in office for 2 month.

Also, can anyone, Geithner, Krugman, et al 100% guarantee that their way will work. I bet they can’t, because this is new terrority for right. From what I’ve read, this is a new situation we find ourselves in. There has been similar seperate circumstances, but nothing truly like this confluences of circumstances all at once right? So all Geithner, Krugman, or anyone else are doing is testing a theory that should work. They don’t know for sure that it will, so how can you say that one will work but the other will not, when we are all just going on theory. No knows the exact right thing to do.

“…I do think, the guy deserves a chance.”
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He’s bought his chance, with an ocean of federal dollars. Unlike certain people who will never support him or anything he does, I doubt there are many liberals who want Obama to fail. It’s just that, even for leaders whom they otherwise support, they feel compelled to criticize policies they think might lead to harmful outcomes or are morally repugnant (in this case, both). That’s another telling difference between liberals and certain people.