Are there any arguments for Geithner's plan not based on "OMG Obama is teh AWESOME!"?

[GOTV]

I see frequent posts critical of Geithner's plan and their always met by defenders that seem to defend without referencing the plan itself. It's all transitive Obama mojo. i.e. if you like Obama and Obama likes Geithner, you must like Geithner.

And although I agree that Obama is teh awesome, I don't understand defenses of the Geithner plan that sound like:

* Obama's only been on office X days!
* Obama's doing exactly what he promised he'd do
* Why did you even vote for Obama if you don't like what he's doing
* Give Obama the benefit of the doubt
* If Obama's for it, I'm for it
* Do you have a better plan?

Anyone like the plan for the plan itself?

[HiFructosePronSyrup]

1. Can you offer a better plan?

[specimenfred1984]

2. I can, arrest criminal CEOs instead of handing them 100s of billions

Was that so hard to understand?

[HiFructosePronSyrup]

5. Ooo, so then the CEOs get off, you get charged with unlawful arrest...

the banks fail, systemic failure throughout all banks and businesses, second Great Depression.

Smooth move, Einstein.

[specimenfred1984]

6. You asked for another plan now you're crying about it?

Thanks for nothing Bushbot.

[HiFructosePronSyrup]

8. I asked for a better plan.

Not childish nonsense that wouldn't work.

[natrat]

26. lot of smart people have put forward viable plans, all ignored by the bank crooks and obama

[HiFructosePronSyrup]

29. For instance?

[merkins]

70. Your either kidding or not reading much.

Paul Krugman, Simon Johnson, Mish Sheldrake, Yves Smith and on and on.

[JuniperLea]

57. I've not heard one of them...

Or even heard TELL of one of them. Here's your chance to enlighten...

[frylock]

64. ..

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8304221#8304612

[roguevalley]

46. given that he fired the ceo of the car company today and made them

partner up with stronger entities, how is that for a start? why keep the shitheads who did this in charge? put the madoff wannabees into the can and put neutral leadership in charge, do deep down audits and bring the money they are sheltering in foreign banks home. Put the company into other hands. Get rid of the layers and layers of dipshits that don't need to be there in management and put people in jail that belong there.

[stillcool]

44. How can you arrest someone...

when they haven't broken any laws? That's really hard for me to understand.

[bvar22]

62. Simple.

Just label them "terrorists".
I believe the label is justified, and Obama has reserved the Bush Unitary Executive Privilege of "disappearing" anyone he labels a "terrorist".

[Zynx]

49. Does that unfreeze credit, or just make you feel better?

[lumberjack_jeff]

19. Our job is to be informed voters, not craft economic policy.

Sycophantic servility is the embodiment of NOT doing our jobs.

[HiFructosePronSyrup]

20. The job of a person complaining is to offer a better alternative.

Otherwise they're just a whiny crybaby.

[frylock]

65. ..

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8304221#8304612

[GOTV]

24. I don't have a better plan but ...

... you have given me another example of a defense that fails to reference the original plan.

I updated the OP accordingly...

[HiFructosePronSyrup]

27. Actually, it was a defense of the original plan.

You're inability to offer a better plan is a defense of the original plan.

Thanks for participating.

[GOTV]

32. Wrong - it's just an admission that I'm not an economist ...

... and once again you give no particular reason for your defense.

[HiFructosePronSyrup]

34. It's an admission you've got no valid complaint.

[GOTV]

37. But my complaint isn't about the plan - it's the data free defenses such as yours n/t

[omega minimo]

67. No. you proved the OP's point, right outta the gate. Classic

:hi:

[KittyWampus]

38. How many fucking times does a rational DU'er need to provide the WORKABLE alternative

that would solve this crisis most efficiently and move the US government away from being nothing more than a tool of a financial elite?

Here, since you apparently have your hands in your ears:

Scale up FDIC
Wipe out shareholders
Replace failed management
Inspect balance sheets
Clean up bank balance sheets
Identify banks facing insolvency
Force banks to either be taken over by govt or write-down value of toxic assets
Transfer those assets to Government run agency
Have Govt sell off those assets
BREAK UP THE OLIGARCHY
Divide big banks into pieces by region or business type
Sell these resultant medium sized pieces

OR IF YOU CAN"T GRASP THAT SIMPLE SUMMATION:

"To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization.....


Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

snip

...break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations."

http://www.theatlantic.com/doc/200905/imf-advice/4

[tbyg52]

73. Works for me. nt

[Baikonour]

54. Post, meet strawman.

[Aloha Spirit]

3. I like the Public Private Investment Program, the Program to help Small Businesses with credit, the

homeowner refinancing plan, The CAP... basically, I support everything in the Financial Stability Plan he put out on Feb 10.
Is that what you're referring to?

[chimpymustgo]

42. Your arguments FOR the "alleged" public/private asset plan? That's the question. What do you like

about this? What makes you think it will work?

[Name removed]

4. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Justyce]

9. Very well thought out, valid arguments...

:eyes:


This board used to occasionally have mature discussions with different viewpoints. I hate how dumbed-down its gotten.

[specimenfred1984]

10. You're on mine

Thanks for living life in denial of the harm that criminals have caused to the U.S. economy.

[lamp_shade]

7. Another one.

[geek tragedy]

11. Sure, here it goes:

1) The big problem surrounding the toxic assets is the great uncertainty around their value. If the owners of those assets and potential buyers both had an idea of their true value, they could be purchased/sold and we'd have greater liquidity in the market, thus improving credit flow.

2) The question, then, is how to determine the value of those assets and get people to exchange them.

3) This is where it gets messy: Most of the high-end talent for valuing such assets works in the buy-side, i.e. private equity and hedge funds. The sell-side chop shops like Bear Stearns and Merrill Lynch knew how to market this crap, but they didn't know how to value it properly. The hedge fund folks know how to do research, use multiple models, dig into the data, and find out what the true value is.

4) The hedge fund and buy-side folks are also the only private sector ones with available capital to invest.

5) Understandably, they're not willing to invest all of their money in assets nobody else wants right now. They could believe an asset has a certain intrinsic value, but if no one else wants it then its value to them gets depressed.

6) So, their needs to be some kind of incentive to get them to purchase this stuff. That's what Geithner's plan does. It allows them to invest $7.5 of their own money to create $105 worth of purchasing power. They have every incentive to avoid overpaying--if they overpay, they lose money. But, they don't have to worry about losing everything, since they're borrowing most of it. But, when they do decide to make that purchase based on their best understanding of the value, it'll have enough $$ to drive the price up.

7) This is most analogous to a pension fund letting a hedge fund manage its investments--but it's actually a better deal.

[MercutioATC]

17. I have a few rebuttals...

1 & 2) Agreed, but valuing them doesn't necessitate the taxpayers purchasing them.

3) They knew how to value it properly, them CHOSE not to. To be fair, circumstances also changed, making the securities impossible to accurately value.

4 & 5) Healthy institutions would buy fairly-valued securities.

6) No. Since they're only putting in 7.5%, institutions have a huge incentive to put their garbage securities into the plan, bid them up, and let the government (taxpayers) assume the lion's share of the risk. That's the biggest problem (in a long list of problems) with this plan.

[geek tragedy]

18. Re: (6) under that scenario, they would lose

a lot of their money. Why would they do that? There is the potential problem of holders of those assets trying to bid up the price--gaming the system--but if we've thought of that, so have the Obama team.

I disagree on (3). They were obsessed with finding stuff they could market to the public--to keep their pipeline of bonds flowing. The ratings agencies were complicit by being extraordinarily lazy and inept.

re: (4) and (5) The problem right now is that there are very few healthy institutions. Moreover, with mark-to-market rules, those assets are deemed worth what someone else is willing to pay for it. That becomes a self-fulfilling problem. If you think that its intrinsic long-term value is $55 but everyone else thinks it's $30 bucks, you're nuts to buy it at $55 or even $45, because you instantly take a big loss on your balance sheet due to those accounting rules.

[Aloha Spirit]

21. Also on 6--that scenario is expressly forbidden. It's all there at treasury.gov if you read it.

[GOTV]

36. First, on point 3

Wasn't the problem that these toxic assets were not valued correctly initially? You say that the buy-side people have the talent to accurately place a value on these assets but then how is it they became nearly valueless? Are you saying they have the talent but didn't apply it?

[geek tragedy]

55. The problem isn't buy-side people holding these things.

It was the lending institutions, who would issue them and then got stuck not being able to sell them.

Ironically, they got stuck with the lowest risk stuff (the stuff that paid the lowest yield) so if the mortgages do recover some value, those assets should be the first to appreciate in value.

Part of what has to be determined is how much of the value decrease is from the underlying value, i.e. home values, portfolio performance, etc and how much is from a negative market distortion due to uncertainty.

[CTLawGuy]

71. their value

was propped up by perpetual rising housing prices. As long as this kept happening, whether borrowers repay loans was actually irrelevant as, at worst, foreclosure would recoup the cost. But once prices started falling, people had to start wondering what the default rate is on these things, and people got scared that if they bought these loans, no one would buy from them if they needed to sell.

[GOTV]

75. well, that, and the fact that derivatives fall much faster than the value of the things ....

.... they are derived from - that's part of the problem as well isn't it?

Some of the original loans still have some value, but I'm not sure the derivatives based on the loans will ever have value since the assets they are based on have moved in the wrong direction. And the value of the derivatives far outstripped the value of the loans they were based on.

Does Geithner's plan address this?

[Teaser]

12. Here's one in brief

and I have hard math to do, so it will be brief:

There are some toxic assets on banks books that are indeed without value. Others *should* possess value, but are caught in a feedback loop with the economy that is artificially deflating the value of those assets.

If we can remove the downward pressure on the potentially valuable bank assets by creating a market for them, we can then look and see how banks are doing with respect to their bottom line. Those banks that are still underwater can be put in line for being "eated". Those banks that start to do better stay alive.

The plan buys time for us to see how bad the situation really is, and to assess the coupling between classes of assets' perceived value the overall economy. Where the coupling is strong, it cuts it. Where it's weak, those are the doomed assets.

[On the Road]

13. To Defend the Plan

against criticism, it is necessary to know what the criticism is first. There have been many from many different viewpoints, as you would expect from economists.

Some of the criticisms, like Krugman's, are based on the belief that the intervention didn't go far enough, that the banks will be on life support for years, and the recession has a long way to go.

That remains to be seen. If this is indeed the bottom, Obama and Geithner will have been vindicated in a big way.

[GOTV]

39. Here's hoping they will be vindicated

[On the Road]

41. Glad to Hear It -- Seriously

I get the feeling that a lot of posters on DU are standing right beside Rush Limbaugh wanting the administration to fail, at least on the economic front.

There is nothing wrong with the general approach Obama and Geithner are taking.

Brad DeLong, a former Clinton official, says that every banking crisis – barring the Great Depression – has been resolved by government recapitalisation of the banking sector...
http://delong.typepad.com/sdj/2009/03/tim-geithner-is-not-a-tool-of-wall-street.html

The question is will it be enough for this particular crisis.

I don't pretend to have the answer, but I am willing to give Obama the benefit of the doubt at this point. After the catastrophic 4th Q, things have actually stabilized in most parts of the economy. That is a good sign.

By the way, for what it's worth, that earlier article continues:

Nor, says Mr DeLong, is it fair to paint Mr Geithner as a creature of Wall Street. “Hank Paulson is a man who grew up in American finance and cannot imagine a world in which America does well and its financial sector does badly,” he says. “Tim Geithner, by contrast, is a bureaucrat and a policymaker. He has never pulled down a multibillion-dollar bonus. They are not the same type of people.”

[MarjorieG]

14. Hoping it won't work? Don't have resources or unity on blowing up the system, first step.

Let's try getting in some private money to price these assets, still an unknown, while stress tests tell us who needs help and doesn't. We are also globally connected.

[rucky]

15. Geithner believes that the quickest way from point A to point B

is to give the banksters a chance to unload their bad assets. Taxpayers and private investors will snap them up, and assume the risk.

This will clear the bank's balance sheets, and allow them to keep functioning & somewhat restore their value. Meanwhile, we have collaterized debt obligations that we hold, and their level of risk is tied in with our economic recovery.

Timmy G believes that we can function with financial giants that are "too big to fail" - as long as they and their investments are well-regulated.

So the points of debate are: Will we have sufficient stability and reform after this? and What are the taxpayers getting themselves into? Will we see some return on our investment? That depends on how confident investors are in the plan, and why you sometimes hear a hearty STFU from plan advocates, out of fear of fear from Wall Street.

No economic plan will provide any of us with the assurances we're asking for. Ever. So we can debate it - which is good - but understand the uncertainty of any solution.

I agree with Krugman and I also think Obama is teh awesome, btw.

[MarjorieG]

22. Think there are more reasons to give Geithner moderation a try than not.

And supporting plan without assumption that we'll fail, or self-fulfilling we will fail.

[rucky]

25. I think the chief arguement against it is...

it doesn't address what many think to be the root of the problem - and it actually empowers the same entities that caused the failure.

Then the catch-22 is that the Geithner plan is shit without regulations, but Wall Street seems to be unaccepting of a well-regulated plan. I don't think they give a flip about public support.

[MarjorieG]

33. Wall St doesn't care about public support, or solvency, or anything. But Obama et all do.

I really think there are so many unknowns about the health of many of our banks, these huber instruments, that a blow everything up, requiring more trillions as a first step, seems unrealistic and unwise.

Not the first time we've had to work with people causing the problem; it's definitely unsatisfying, but necessary, I think.

[GOTV]

40. But do private investors assume risk? Or have we insured them against risk?

and therefore continue to privatize profits and socialize losses

[girl gone mad]

43. Private investors do not assume any risk.

That has been one of the biggest criticisms of the PPIP.

See:

http://www.ritholtz.com/blog/2009/03/ppip-heads-or-tails/

http://interfluidity.powerblogs.com/posts/1237877649.shtml

http://seekingalpha.com/article/127394-geithner-releases-plan-details-taxpayers-will-suffer

http://www.calculatedriskblog.com/2009/03/geithners-toxic-asset-plan.html

http://optionarmageddon.ml-implode.com/2009/03/23/geithner-releases-details-taxpayers-to-suffer/

[high density]

48. That's wrong. The private investors assume risk as well.

The private investors put up $X and they could lose $X. The US taxpayer stands to lose more, but it is less risk than nationalization.

Edit: here's a link for you http://www.treasury.gov/press/releases/tg65.htm

The Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.

[GOTV]

51. If there is no protection for the private investor, why he more likely to invest ...

... AFTER the government is involved? Why doesn't the PI just invest in the toxic assets right now?

[high density]

52. Because...

The banks do not want to sell them at the price that the investors are currently willing to pay. The FDIC is bringing up 6:1 leverage to sweeten the deal for the banks.

[GOTV]

58. So how does that work? for every $1 the PI invests we put in $6?

So the PI gets the investment for the $1 he's willing to pay but the bank gets the $7 it wants?

That can't be right.... who owns the toxic asset at that point?

[Political Tiger]

16. Are there any arguments against Geithner's plan not based on "Krugman sez so?"

....or "I read it's a bad plan in Counterpunch/Raw Story" or "my favorite blogger doesn't like it?"

[GOTV]

28. Yeah, Krugman's

You might not like it but it's a criticism based on the plan and not the personalities. His attack isn't based on "Obama is teh suck!"

[specimenfred1984]

31. There's been about 20 posted here on DU alone

You could use your own mind too, like I do when I recognize that calling fraud "toxic assets" is nothing but propaganda. The banks conspired to commit fraud, to cover it up and attempted to blame it on others. This same thing occurred in gov't, real estate, insurance, energy, health care and scientific fields. The only way to ever recover from an entire culture of corruption is to start arresting criminals one by one until credibility is restored in each individual sector.

Throwing 100s of billions at the very criminals themselves is insane.

[natrat]

35. yes that is a true but in general it seems the banks are getting a massive free ride

at the taxpayers expense. This plan allows for them to potentially profit with very little risk. They already got 100 cents on the dollar for their own mistakes, and that was shrouded in secrecy for months. The whole thing kind of stinks; any sane person looking in from the outside could see that there is potentially enormous fraud involved.Sadly it seems these banks are golden and can not be touched. They should be broken up and regulated like in the past, but that was another depression with a more sound government in control.

[ProSense]

23. This is prior to the release of the plan, but it makes a great case

Nowadays a lot of banks have the bulk of their assets funded by things that are not deposits. Indeed at many banks deposits constitute less than half the balance sheet.

The old FDIC guarantee can’t stop runs because the run that happens is wholesale – it happens outside FDIC guarantee limit. If you want to stop bank runs the way that the original FDIC stopped bank runs you need to bite the “Swedish Bullet” – that is you need to effectively guarantee everything.

<...>

However just as the creation of the FDIC did not require you to be “prepared to put all troubled banks in receivership” a Swedish guarantee also does not require you to put all troubled banks into receivership.

What the FDIC guarantee required – and what a Swedish Guarantee will require – is you be prepared to (a) regulate banks heavily on an ongoing basis, (b) test the capital of banks, (c) force them to be adequately capitalised (rasing money if they can), and (d) nationalise the banks that cannot raise adequate capital.

When the good times return you probably need walk away from this general guarantee. In other words you have to regulate banks in such a way that they can’t become large enough to destroy the whole economy - so that you reduce the systemic risk at the cost of stifling "financial innovation". That means that the recidivist Citigroup – a bank that seems to blow up every cycle – will never be allowed to become as big and nasty again. It would be a terrible policy outcome if we did not learn from this crisis and did not regulate in such a way that it was less likely to happen again. Willem Buiter's call for "over regulation of banks" looks right to me.

Krugman’s illogic however does not help the debate. There is a need to guarantee all banking assets – and it should be done provided it is affordable. There is no consequent need to nationalise the whole system – though there will be a need to have a process which will result in nationalisation of some institutions – what I call “nationalisation after due process”.

(Emphasis added)

The underlined section reads like the Geithner plan. More here, including Krugman's response.

[Jennicut]

30. People like Frenchie have written a whole book about Geithner's plan in details

Go look it up yourself and please stop generalizing people!
Seriously, the pros of the Geithner plan is to use the market to pay for the bad assets themselves while he is also asking for more powers to be able to seize firms on a case by case basis. He is also using stress tests to look at what banks can be saved and which ones must be seized.
Krugman wants us to forgo the free market option as he seriously questions the ethics of bad bankers being able to go back and make a buck or really anyone on Wall St. being able make a buck on bad investments and does not trust the industry to regulate itself, thus allowing bad bankers to swap around the bad assetts. Geithner is pushing for some reforms while Krugman wants the whole thing overhauled. One is a liberal capitalistic idea the other more liberal socialistic.
Is that good enough.
Krugman is teh awesome at times though he has a huge ego right now. Obama is teh awesome at other times. See? We can debate without falling apart on DU.

[ClarkUSA]

45. There have been plenty of pro-Geithner economist OPs, but you're only here to post flamebait

[GOTV]

50. Yet strangely, I've received very few flames. If you like the plan ....

... can you answer the critics without reference to Obama's awesomeness?

[Name removed]

53. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Aloha Spirit]

56. As I asked in post #3, which plan would you like me to defend?

All of them?
If you can show some understanding of which part of which plan you would like us to defend, then I can help you.

[GOTV]

59. You could defend any of the criticisms of Krugman, Stiglitz or Galbraith ....

... the point of this post was not to get an answer to any particular questions of mine (although I do have questions) but to try to stop people defending Geithner's plan from using the kind of tactics I listed in the OP which don't address the critiques.

But for myself, the Geithner plan appears to continue the problem of socializing losses while privatizing gains. They want people to invest in these bad assets, so we provide some kind of incentive which seems to me an insurance against loss (which would mean we assume the loss). Maybe not 100% insurance but some amount. If the asset goes up in value then we're lucky in that he didn't need our insurance but the increased value goes to the investor. We get (some of) the downside, they get the upside.

If it is not the case that we insure against some degree of loss, then what change do we possibly make through our involvement? If private investors are not getting involved due to cost or risk, and we are not assuming some of the cost or risk for them, why will they get involved now?

[Egnever]

95. part of your problem is you dont understand what you are talking about

And you are repeating talking points that are misleading if not outright false.

It is a joint investment not an insured invbestment, THe taxpayer kicks in money and lets the PI do the pricing. Both lose if the investment goes bad. The PI does not get his money back either. Yes they get a disproportional share of any profit made but this isnt intended to make us money it is untended to stabalize the market and if we get lucky and it works then we still stand to recoup our tax dollar investment and maybe even make a little.

Stop repeating the same BS argument over and over that we take all the risk. We do not.

As for why they will get involved now. It is because of the disproportional profit sharing. They stand to make large gains on minimal investments while the tax payer stands to make minimal gains on large investments. In effect any gains made will be amplified because we take a smaller cut oif the profit while putting up the majority of the cash.

If for example the assets were purchased and just held their value at the purchase price then neither side gains or loses anything. if it loses value then both sides lose , if however it gains value say from $10 to $20 the tax payer would get back 12.50 on a 7.50 investment and the IP would get back 7.50 on a 2.50 investment, Pretty sweet profit if you price your investments correctly. if it was a straight up investment they wouldnt do nearly as well.

[ClarkUSA]

61. That's because Obama supporters are more tolerant than anti-Obama flamebait posters.

Go check archives for what you seek, but I doubt you're really interested in anything other than posting inflammatory, divisive anti-Obama
crap.

[GOTV]

74. or... maybe it's not flame bait - and if you check you'll see I am participating in the thread ....

... at least the substantive parts

[ClarkUSA]

84. Oh, it definitely is... your mocking, derisive tone towards Obama supporters is proof positive.

Enjoy the next eight years of Tim Geithner and President Obama's genius. Together, they have the economy already recovering,
so this OP is irrelevant. I'll enjoy watching your continued efforts at agitation, if you last that long.

[GOTV]

86. I'm posting flamebait AND mocking myself? I'm learning so much from you!

[ClarkUSA]

88. lol! Yeah sure, you're a real Obama supporter... do you have a bridge to sell me, too?

:rofl:

Do enjoy the next eight years of Team O's great success. If you last that long.

[rucky]

66. This is a very helpful thread.

thanks :thumbsup:

[high density]

47. Less risk for the US taxpayer

The auctions involve the private markets, so pricing will be better than if it were just the government bidding.

Private investors stand to lose whatever they put in. Taxpayers will share in profits.

Banks get rid of the assets for which there is no current market, which frees them up to lend again. Banks will get a better price thanks to the leverage provided by the FDIC.

I like the plan. If the banks don't participate and/or fail to start lending after participating, it certainly gives Obama a lot of leverage. At that point it becomes viable to open some sort of bank that lends directly to businesses or to nationalize these poorly capitalized institutions and force them into lending.

[anonymous171]

60. Here's my plan: Make Krugman the Treasury Secretary

Make him put his money where his mouth is.

[JayMusgrove]

68. Or we could just bring Bush back, if you really want America to fail. n/t

[anonymous171]

69. Well, Krugman's plans might work. He is a noble prize winning economist after all. nt

[FrenchieCat]

63. The Geithner plan keeps investors even keel, and that is what we need....investors to believe

in our financial institutions and to feel like they are getting something for investing in our markets, considering that we were the ones who led the mess to begin with.

Let me explain.....

When economists don't address the issue of how world investors would react to the largest capitalistic country on Earth nationalizing its financial institutions (which in themselves represent capitalism) as Krugman has recommended, it makes their theories extremely narrow and blind to large uncontrolled variables that play into our markets, and our economy daily.

I would hope and do believe that Krugman does understand that countries like China and others who hold our debt do so in part because of the stability the American political system and all that it entails. America was built on capitalism, and to suddently having it change course as drastically as Krugman suggests, would send a signal of panic, and one would see investors with hair on fire cashing out of government bonds as quickly as you can say Boo, and the market crash would be so severe, I'm not sure this country would recover.

Does Krugman ever discuss his bet on the reaction of investors, which because the US is in such large deficits, could result in the US becoming a 3rd world nation? I'm curious on this.

An overt act of nationalization such as Krugman suggest, as opposed to the covert one which is what the Obama administration are signaling (by virtue of the power they are asking from congress), in reference to one of our largest institutions such as BoA or Citi would have unintended consequences.

Currently we have the luxury of effectively nationalizing private debt through the issuance of government debt at very low rates (The principal amount of debt is less relevant than cost of carrying it). We get these low rates, because many foreign buyers of treasuries believe things are worse where they are than where we are. The nationalization of a major American banking institution, no matter how justified, would be a public acknowledgement that our system is broken to a point of no return. This would shake the confidence of our international investors who hold our debt. There could be a a run on not only the banks, but our government by the debt holders. There is a possibility that this wouldn't happen, but that is not a bet anyone would want to risk because if compared to the cost of bailing the banks out through giving them a gift of shadow capital, nationalization reaction could be a tragic disaster for this country.

I think that the administration understand this well, which is why they are doing what they are doing, as opposed to what Krugman is calling for.

[eridani]

76. Translation: The "investors" ie the richest 0.1% of the population dictate what happens--

--to our economy. Why not liquidate them as a class by stripping them of their assets and starting over?

[FrenchieCat]

78. Because then there won't be an economy to debate about?

[eridani]

80. We need a real economy in goods and services. We don't need a financial economy

Telling holders of derivatives that are supposedly "worth" many times more than the entire GDP of the world that they aren't going to get any money has nothing to do with the real world. They could all be put up against a wall and shot without any harm to 99.9999% of the world's population. Total GDP of the United States: $14.3 trillion, Total GDP of the WORLD: $78.3 trillion

http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Geithner_Secret/geithner_secret.html
Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo -Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

[redqueen]

87. Wall Street has this country by the short and curlies.

You and a few others might be willing to watch the whole thing burn to the ground and start fresh... but obviously most others aren't to that point yet.

[eridani]

89. We either do something about it, or our real economy is going to get destroyed

Most of the nonsense derivatives are held by only five banks, and I think we can well afford to let them go down the toilet. The rest of the financial sector is mostly OK.

[Abq_Sarah]

82. "The investors"

Are every single American with a 401K. That equals the majority of voters.

[eridani]

83. 90% of the population owns only 10-15% or so of stocks and financial voters

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

The top 10% has had enough protection and ought to be stripped of at least some of its assets to reactivate the real economy.

Also, the median amount (i.e. the middle point) of 401k plan balances is $35,000.

http://brianleon.com/journal/2008/10/22/the-myth-of-a-401k-retirement/

[Abq_Sarah]

85. Well, that would make me

Want to run right out and start investing again.

[eridani]

90. If you are young enough, you can afford the risk

If you have no money that you can afford to lose, that would be seriously stupid.

Given time, either the market will recover or it won't. In the latter case, you'll have hundreds of more pressing problems than the state of the market.

[Telly Savalas]

81. Let's not pretend that Obama's actions are "covert".

There are people at investment banks who read newspapers just like us, so they're tipped off to what Obama's doing and the powers that Geithner is asking for.

[stillcool]

72. I am no economic whiz...

but buying the bundled assets sounds like a horse race, except you bet on the entire field, thereby guaranteeing a win. My uncle did that once at a carnival. All I got was a skateboard. I don't know if their plan will work, or what Plan B, C, or D is but I'm sure they've already been calculated..but that's just me..and I know nothing.

[John the Revelator]

77. threads like this are always good to give you an idea of how many tools are lurking

survey says!
16

[Avalux]

79. I cannot come up with a better plan because I don't have the knowledge.

Most here do not and for that reason, it would be reasonable to allow what the Obama Administration implements a little time to work - so we can see the results - before running hysterical off the tallest cliff.

[jonestonesusa]

91. The points you made are the reasons why we should have a discussion

and not simply assume that the Obama policies, or any other, should be accepted on faith.

I want to thank all the posters on this thread, on both the "pro-Geithner" and "anti-Geithner" sides, who have often linked their comments to articles, videos, and blogs discussing the finance crisis. It's critical that we play our part in the decision making as informed citizens, and DU is a prominent board among a bigger segment of the blogging public than we may realize. This discussion has helped me a great deal. The blind faith in our leaders approach isn't one that I advocate, and I'm certainly not an economist, but I try to follow the news closely, think critically, and act accordingly. In what I hope will be the post-neocon world, we need to rely on open discussion and listening to all points of view as a part of shaping policy. To do otherwise lands us in a ditch like the economy has been in. One of my biggest objections to the neocon era is the pervasive anti-intellectualism, the dismissing of perspectives from those who do not share our conclusions, even if their credentials are well established. What in the world is wrong with discussion for the purpose of becoming more informed?

Among the many primers on the economic crisis that have been linked to by people on DU, this is my favorite starting place from This American Life for grasping the roots of the problem, at least the part of the crisis fed by the failure of mortgage-backed securities. Essential listening, in my opinion as a non-economist.

http://www.thislife.org/Radio_Episode.aspx?sched=1242

Thanks to everyone here who has persisted in open discussion and criticism of the TARP policies as necessary to provide thoughtful perspectives on a policy issue with very high stakes for all of us.

[LanternWaste]

92. Which begs the question...

Are there any arguments against Geithner's plan not based on "OMG-- he's a corporate stooge screwing the lower and middle classes!!!"

Six of one, half a dozen of the other...

[jonestonesusa]

93. So what's your conclusion?

The immediate future of our financial system depends on being able to cut through the partisan arguments and come to a thoughtful position on these issues. It's so easy to say the equivalent of "a pox on both your houses." How do you respond to the economic plans, as a citizen with the right to vote, to support and dissent when it comes to political positions, and a big financial stake in the outcome of these decisions?

[LanternWaste]

94. My response is an unequivocal, "I have absolutely no idea...".

My response is an unequivocal, "I have absolutely no idea...".

I think that's probably the most popular answered never given out loud-- we merely make up our voiced answers as we're talking.

From where I sit, macro-, world-wide economics is one of the most esoteric and subjective of all the social sciences... and for rank amateurs to tell me with absolute certainty what should or should not be done (Right Fucking Now!) based off of nothing more than reading Confessions of an Economic Hit Man, and watching a few episodes of Wall Street Week is only a little less absurd than listening to Rush Limbaugh telling me how to lead a good, Christian life.

My admitted ignorance forces me to place my faith in those few people who have actually studied the relevant disciplines whom I trust, rather than the conclusions of posters who's economic education mirrors mine-- three semesters of college Econ and balancing my own checkbook.


Maybe I'm way off base and I'm actually surrounded by people who intuitively know the difference between M.V = P.Q and the Lucas Critique, and have The Best Answers. Maybe I'm merely one of the very few people out here who has no idea what "Dynamic stochastic general equilibrium" is. But I doubt it...