Economic Ping Pong

The Geithner Plan FAQ
http://delong.typepad.com/sdj/2009/03/the-geithner-plan-faq.html

Brad Delong explains the highlights of the Geithner plan.

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Financial Policy Despair
http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=2&ref=opinion

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
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As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
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The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.
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You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

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So that's Paul Krugman explaining why this is the same old story from Obama and Co. - give the wealthy folks that have driven our economy to the brink billions and billions of dollars without oversight because *THEY* know how to fix it. If they win, they profit hugely. If they fuck it up all over again, the taxpayers will cover it. Brilliant!

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I Think Paul Krugman Is Wrong
http://delong.typepad.com/sdj/2009/03/i-think-paul-krugman-is-wrong.html

I find that a scary sentence to write. If the past decade has taught me anything, it has taught me that mistakes are avoided if you follow two rules:
1. Remember that Paul Krugman is right.
2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.

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And then DeLong goes on to tell you why he's right and Krugman is wrong. The sentence I find a little scary to write reads:

I think Brad Delong is wrong.

Obama had the mandate to nationalize the banks they day he walked into office. Wasting a bunch of time getting there while the economy tanks even further is just idiotic.

What Obama obviously wanted was the same blank check Paulson demanded. And he's getting it even if he is cloaking it better. At the end of the day it's just the same socialized solution for those at the top while everyone else in the U.S. goes begging for the kind of economic justice more readily available elsewhere among the western nations.

Universal healthecare, the green agenda and better educational opportunities are starting to look like distant dreams indeed. After all of this money is squandered on solutions that will not and could not have worked, they will still need even more money to finally nationalize the banks and cover for the toxic assets that are very significantly lower in true market value than anyone imagines right now.

One things that is remarkable about this huge fiasco is how even well informed economists disgree on what to do and why to do it. That goes such a long way to covering the asses of our clueless politicians that I find it actually worrying.

So yeah, this is another follow-up on the countdown to nationalization.

Brad DeLong on Nationalization

Time Not for a Bailout, But for Nationalization...

http://delong.typepad.com/sdj/2008/09/time-not-for-a.html

Nationalization has the best chance of avoiding large losses and possibly even making money for the taxpayer. And it is the best way to deal with the moral hazard problem.

It might work like this. Congress:

• grants the Federal Reserve Board the power to take any financial firm whatsoever with liabilities and capital of more than $25 billion that is not well capitalized into conservatorship


• requires the Federal Reserve Board to liquidate any financial firm in its conservatorship when it judges that the firm is insolvent (paying off in full or not paying off in full the liabilities of the firm at its discretion), unless


• the Federal Reserve Board finds that preservation as a going concern is in the interest of the taxpayer, in which case Congress


• grants the Federal Reserve Board the power to transform equity stakes in the firm into junior preferred stock at par value and then transfer ownership and custody of the firm to the Treasury


• requires the Federal Reserve to terminate conservatorship if the firm becomes well-capitalized once again.

In addition, Congress:

• grants the Treasury the power to issue up to $500 billion of troubled asset redemption bonds, the proceeds of which are then to be loaned to the Federal Reserve to be used to cover the liabilities of those liquidated firms that the Federal Reserve judges it is in the interest of the taxpayer to have their liabilities paid off in full.

Paulson had his shot. It's time for the Democrats to pass a nationalization in the taxpayers' interest bill and dare Bush to veto it. If he does, then announce that the congress will pass it again the day after the election. And if he vetoes it again, announce that congress will pass it yet again on January 21, 2009.

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Comment: As DeLong notes, we want to avoid doing nothing and allowing fear to freeze liquidity. My only concern is that he doesn't seem to be distinguishing between any of the many types of financial firms. I guess he's seeing them all as a kind of public good no matter their particular stripe.

What I also like about his idea is that is avoids the poison pill as discussed below and regains political clout for those proffering this kind of sensible plan. It could be the Democrats if they have any brains.

::rolls eyes::