US Treasury Asking For Takeover Authority - Brookings Study A Preview Of Overall Strategy?

[Median Democrat]

I know that Krugman and Stiglitz have simultaneously attacked the proposed plan as (1) not working at all, because banks won't sell, (2) being a waste of taxpayer money (which appears to contract #1 if no sale is taking place), and (3) not being big enough to remove a sizable number of toxic assets of the banks books. YET, we also have Geithner asking for the power to essentially nationalize AIG, which the government currently does not have, which is odd, since it always appeared that nationalization was not on the table.

My impression of these somewhat contradictory steps, a private partnership along with bank nationalization powers, is that the Obama administration may be pursuing a strategy outlined in this Brookings Study report that recommends a mix and match approach. This probably will not satisfy purists on either end of the idealogical spectrum, but the Brookings Institution is a pretty influential think tank, so they are a little more than just another commentator.

http://www.brookings.edu/~/media/Files/rc/papers/2009/0129_banks_elliott/0129_banks_elliott.pdf

/snip

It is becoming increasingly clear that the $700 billion in TARP funds will not be sufficient to restore the US financial system to good health. The first portion, of $350 billion, appears only to have helped prevent a complete meltdown of our financial system, but has not averted significant further deterioration in recent months, particularly among the weaker or less well-managed banks. The new Administration and Congress soon will be debating how to spend the second $350 billion, and possibly the size of additional amounts to be committed.

While some portion of the second $350 billion clearly will be spent addressing the mortgage foreclosure problem, there is much greater uncertainty over what further measures should be taken to shore up the financial system. Three particular ideas have received a growing amount of attention: establishing a “bad bank”, guaranteeing toxic assets, and nationalizing one or more banks. This paper explains the three approaches and their major variations, with a discussion of the pros and cons.

The author recommends a combination of toxic asset guarantees and a mild form of nationalization, as this approach could both provide badly needed stability to the system and also could be tailored to the specific circumstances of different banks.

/snip

It appears to me that Geithner's plan arguably tracks the mix and match recommendations offered by Brookings. But, there are some folks who resigned to viewing thinks in black and white terms, and if you are with Geithner, you are against liberals.

[Jennicut]

1. Its not totally a pure approach either way, hence the reason why

Free market Rethugs and pure leftists hate it. I do like the step toward seizing firms (not banks, that is the FDIC, right?). That is nationalization in a case by case situation but not a total take over.

[FrenchieCat]

2. Nationalization would detract investors, that's why they don't want to use the term.

Someone ought to tell Krugman about the fact that investors that are needed to capitalize our financial institutions ain't gonna want to invest in government ran institutions, because it is believed that government is not supposed to be about maximizing profits, while investing is about exactly that.

[Jennicut]

3. Well look at these investor types. Many are right wing

Repubs obviously. I think nationalization can be used effectively admittedly in a bit of a sneaky way. The biggest issue is the credit just in not flowing and will not unless the administration has someone come in and get rid of these toxic assets. They are aholes and trying to hold Obama hostage so he cannot move the economy forward and get anything done. I know Krugman would probably say to hell with them. Of course a tanking economy hurts us more then anyone else and Obama is worried about that fact. I am not sure what the answer is. I would like to see some legitimate firms buy up some of these assets and perhaps some banks can bounce back. But for the absolutely failing banks and firms step in and seize 'em and break them down.