A Trillion Dollars for the Banks: How About a Second Opinion? by Dean Baker

[Better Believe It]

A Trillion Dollars for the Banks: How About a Second Opinion?
by Dean Baker
April 6, 2009
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( www.conservativenannystate.org) and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.

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Treasury Secretary Timothy Geithner wants to have the government lend up to a trillion dollars to hedge funds, private equity, funds and the banks themselves to clear their books of toxic assets. The plan implies a substantial subsidy to the banks. It is likely to result in the disposal of these assets at far above market value, with the government picking up the losses.

The Geithner plan is an effort to rescue the banks by using government funding to prop up the price of these bad loans to levels that will allow the banks to stay solvent. It is not clear that the plan is big enough to accomplish this goal, but that is the basic intention. If it doesn't work, then presumably Geithner will come out with another TARP permutation that involves giving the banks even more money.

Anyhow, the Geithner crew insists that there are no alternatives to his plan; we have to just keep giving hundreds of billions of dollars to the banks. Perhaps Geithner is right. But before we throw such huge sums away, further enriching the bankers who wrecked the economy, maybe we should get a second opinion.

Suppose that Congress appropriated a modest chunk of money to have independent economists put together teams to construct alternative plans. Why not give M.I.T. professor Simon Johnson, a former chief economist of the IMF, $5 million to hire a crew to outline his preferred path? Congress could give Joe Stiglitz, a Nobel Prize winner and one-time chief economist to President Clinton, who is also a harsh critic of the Geithner plan, a similar sum to put together his own team.

Given how much money Geithner wants to spend - putting it in the hands of the folks that brought on this economic crisis - it would seem appropriate to first examine all the alternatives. After all, we could find out what our options are in this case for the price of just a few A.I.G. executive bonuses. That has to be a good deal in anyone's book.

Please read the complete article at:

http://www.commondreams.org/view/2009/04/06-14

[terisan]

1. He is making sense. nt

[notesdev]

2. Seriously

it seems like more people double check on a claim for a routine doctor's visit than on a trillion dollar giveaway.

[FrenchieCat]

3. Why is 5 million dollars needed?

How long will this crew be working? :shrug:

[AdHocSolver]

4. I have a simpler, cheaper plan to dispose of toxic assets. It involves a paper shredder.

The economy is NOT the stock market, it is NOT hedge funds, it is NOT private equity funds.

The REAL economy is DEMAND driven and is dependent on JOBS. The economy does not collapse because stock prices drop. The boom and bust in the stock market occurs because that is required for a Ponzi scheme to work.

With so many people losing their jobs, the REAL economy is going to tank anyway IN SPITE of the so-called "bailout" money being thrown down the rathole by the government. All of the supposed experts are full of manure.

Put people to work and set up trade barriers to cheap imports so that what Americans buy will be "Made in America" again. The economy is in trouble because just about everything we buy is imported, which means this country goes into debt to foreigners just to obtain the necessities of life. No economy is sustainable that is based on the trade model currently promoted by the corporations. Every argument promoted by corporations and their economist lackeys for what they call the grossly MISNAMED "free trade" is plain FALSE.

Moreover, EFCA won't help one bit if the corporations can merely ship those jobs overseas.

Labor better wise up to the fact that they are fighting the wrong battle if all they demand is the right to join a union. As soon as you get your union, your job can (and will) be shipped overseas. An unemployed union member is no better off than an employed worker who is not a union member.

[dreamnightwind]

7. Good points...

"Moreover, EFCA won't help one bit if the corporations can merely ship those jobs overseas."

Kinda off topic for the OP, but I agree and don't hear this expressed enough. Without either a global labor movement or legislation preventing the offshoring of unionized jobs (like that's even going to be considered), I don't see how EFCA will help. Well, i can see how it helps for some jobs that can't be relocated, but mostly it'll be another thing that drives jobs out of the country.

Great post. What we're being sold as Free Trade is just migration of capitol to the least regulated havens and migration of jobs to the poorest nations with the worst worker conditions and the lowest wages. Free Tradesploitation.

Also agree and cannot repeat often enough that the economy is not the financials. At least, it shouldn't be.

[truedelphi]

8. Wish I could K & R your post. n/t

[jeanpalmer]

5. Not another penny for the banksters

In the outrageous, obscene AIG bailout, Goldman alone got $12.9 billion US from Washington, no strings attached. Obama, John McCain, Hillary Clinton and everyone important in Congress received embarrassingly large cash contributions from Wall Street.

Now, the money men are trying to block meaningful financial reforms.
If U.S. banks don't admit their true losses, and if the White House keeps propping them up, they will become like Japan's bankrupt "zombie" banks in the 1990s: Dead men walking.

The right answer is to make them come clean and fire the mountebanks and con men who ran them into the ground. Then temporarily nationalize these banks and break them up into smaller firms that are not too big to fail.

The bankers, brokers, traders and credit rating agencies responsible for the greatest fraud in U.S. history, the subprime and Alt-A mortgage scams, should join Bernie Madoff behind bars.

http://www.torontosun.com/comment/columnists/eric_margolis/2009/04/05/9009691-sun.html#print

[depakid]

6. "...it would seem appropriate to first examine all the alternatives."

Why yes, it would....

Just as it would be appropriate to see and have a full and fair debate about the justifications behind the current plan.

[leftstreet]

9. Is 'trillion' the new 'billion'?

A trillion is a thousand billion.

:scared: