Krugman: Bailout narratives

[ProSense]

October 1, 2008, 10:08 am

Bailout narratives

There seem to be two prevailing narratives about the bailout plan(s). Both have elements of truth, but are fundamentally wrong.

One narrative is that of the Wise Men and the Destructive Yahoos. According to this narrative, men who Understand What Needs to be Done put together a plan to save the world, but they did a bad job of communicating, and a mob of ignorant people stands in their way.

The other narrative is that of the Evil Plotters and the Righteous Uprising. According to this narrative, the same people who sold us the Iraq war have tried to bully Congress into adopting a plan that is, in essence, a cynical ripoff — a scheme to transfer vast wealth to the rich and cripple the next administration.

As I said, there’s some truth to both narratives. Many of those opposing the bailout are indeed destructive yahoos — read some of the speeches during the House debate. And yes, there were Iraq echoes in the way Paulson tried to ram his original plan through.

But both narratives are mostly wrong.

<...>

My view, which I think is now shared by many economists, is that Paulson grabbed hold of the wrong end of the stick — he should have been seeking to expand bank capital, taking an ownership share in compensation, rather than trying to push up the value of toxic paper. In the end, that’s what we’ll probably do.

<....>

So now what? Like Jamie Galbraith, I’d rather see Dodd-Frank-Paulson, which is much better than the original plan, pass than not. The true cost to taxpayers will probably be close to zero, and it would buy some time. But I’m not passionate about this. The real financial rescue still lies in the future, probably under the Obama administration.

[1corona4u]

1. His last paragraph says it all.

[nadinbrzezinski]

2. Why this is buying us time

and it is FAR FROM IDEAL

[msallied]

3. Common sense doesn't work here. It's been tried. lol

But I appreciate your continuing efforts.

Like Obama said. Put out the fire now. We'll address the causes of this problem when Obama is President. We don't have the luxury of hindsight on this.

[flpoljunkie]

4. But, that is not what they did.

My view, which I think is now shared by many economists, is that Paulson grabbed hold of the wrong end of the stick — he should have been seeking to expand bank capital, taking an ownership share in compensation, rather than trying to push up the value of toxic paper. In the end, that’s what we’ll probably do.

[ProSense]

5. Yeah, that's about the plan Paulson presented, you know

the one-pager that said sign here.

[girl gone mad]

6. I think this is the more telling paragraph:

“There’s a reason Paulson et al had such a hard time communicating the case for their plan — they didn’t have a very good case. To this day they’ve never been able to explain clearly why buying up bad mortgage assets at market prices will solve the credit crunch. ”


Krugman is being somewhat intellectually dishonest by arguing that Paulson doesn't have a good case, but we should go ahead and hand over our money anyhow.

[ProSense]

7. He's talking about Paulson's plan.

Not the plan being voted on. That would be the renegotiated plan.

[bkscribe]

8. I have great respect for Krugman, BUT

I just don't understand why if our government gives $700 billion to bail out Wall St., the cost to taxpayers will be close to zero. Just don't understand it.

And, if there could be a better bill, why not fight for it until Obama is president?

[bvar22]

9. Give us $700Billion of your children's money NOW, and we'll fix it later....

AND, it probably won't cost you a thing!

Now where have I heard this before?