by Damozel | It's Japan all over again, says Krugman.
Obama and Geithner say the right things. But Simon Johnson nails it:
How long can you say, “we are being bold” when in fact you are not?
Obama and Geithner say things like,
If you underestimate the problem; if you do too little,
too late; if you don’t move aggressively enough; if you are not open
and honest in trying to assess the true cost of this; then you will
face a deeper, long lasting crisis.
But what they’re actually doing is underestimating the problem,
doing too little too late, and not being open and honest in trying to
assess the true cost.
At The Wonk Room, Pat Garofalo says:
During an interview yesterday with Jim Lehrer, Treasury Secretary Timothy Geithner
firmly dismissed nationalization as an option for combating the banking crisis:
GEITHNER: I think that’s the wrong strategy for the country, and I don’t think it’s a necessary strategy.
What we need to do is to make sure that these institutions have the
resources necessary to perform their critical function on an ongoing
basis in our economy as a whole....
[N]ationalization needs to be considered, and there’s something wrong if Geithner really believes it’s not an option....Geithner’s alternative has the government receiving stock in the banks “
just like anybody else,”
so there will be a return on the investments. And while there would be
a return, it doesn’t change the fact that the government would be
sinking a lot of money into these banks without gaining authority and
accountability over the use of taxpayer funds. The banks could simply
work to maximize short-term gain —
or throw lavish parties — and there would be very little Treasury could do about it.
Yes -- as Matt Yglesias says, "[T]hese institutions” need a lot of money."
If the banks are owned by the same people who own them now, and managed
by the same people who manage them now, then it’s going to be
extraordinarily difficult to persuade the congress and the public that
we ought to make enormous transfers of funds from the taxpayers to
those owners and managers. What’s more, the banks will continue to be
managed by the same bad managers who got us into the current situation.
As a result, we’re going to wind up giving the banks less money than
they really need to take off. And they’ll continue to be managed
poorly. So they’ll continue to be wards of the state. And no private
investors are going to want to give smaller, healthier banks the
capital they would need to expand and thrive. Consequently,
our economy will continue to be dominated by large, semi-dead financial
institutions that hamper growth.
Krugman describes the current plan and its consequences as follows:
The actual plan seems to be to keep the banks semi-alive by implicitly
guaranteeing their liabilities and dribbling in money as necessary, all
the while proclaiming that they’re adequately capitalized — and hope
that things turn up....And the result will probably be a deeper, long-lasting crisis.
At The Reaction, Creature says:
[T[he administration's new game plan
is really a lipstick-on-a-pig scenario. The first half of TARP didn't
work. Credit is still basically frozen and those toxic assets still
stink up balance sheets. Yes, the first half of TARP may have staved
off total collapse, but now the Obama administration plans to spend the
next half in almost exactly the same way and request even more money from Congress. In the end they are just buying time and hoping things work out. How very Bush of them.
Speaking as an ignorant layperson, I'm ready to see the banks nationalized. If even Alan Greenspan and Lindsay Graham say it's time... it is TIME.
Memeorandum has more.
RELATED
RECENT BUCK NAKED POLITICS POSTINGS
Hm. Well. If Alan Greenspan and Lindsay Graham say it's time, I'd check my watch.
There are advantages to nationalization. I especially like the parts about wiping out existing shareholders and firing management.
However, there are disadvantages. Operations like Citi are heeeuge. And if you nationalize, you have to actually pay attention to what they're doing. It can turn into an enormous time sink. There are also no guarantees that it will actually be better for the taxpayer. In the S&L crisis, they appointed people who did a fire sale of assets; people made money, but it sure wasn't the taxpayers. A fire sale of assets at this moment would be particularly bad.
As HL Mencken said, "For every complex problem, there is an answer that is clear, simple--and wrong." In the case of the financial crisis, there may even be more than one.
Posted by: Charles | February 27, 2009 at 09:53 PM