Oh Crap

Posted on 03/21/2009 at 12:15 pm by Bob Cesca

Secretary Geithner’s plan has apparently been leaked, and the initial conclusion is that it’s not good. Krugman:

I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.

There are many people smarter than I who are putting this together, so far be it from me to question the wisdom (or not) of the administration’s plan. But my on-going question on this front is, admittedly, a simple one: isn’t there something to be said for not reinventing the wheel? There seems to be a simple solution in temporary nationalization, but instead we’re getting this melange of potentially dangerous measures.

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  • Zanath

    I know absolutely nothing about economics so I really can’t say whether it is a good plan or not. Frankly, I don’t really understand it. I’m also of the belief that NOBODY, regardless of their knowledge and expertise, knows what the solution is.

  • SillyRatfacedGit

    I agree Zanath. This stuff is way above my pay grade.Like Bob, I am concerned when Paul Krugman is concerned. Paul’s batting average on these things is rather high. Paul is my standard windsock for all things economic.

  • AdyLeigh

    No, no, no! I currently do contract work in finance for many companies here in Greenville, SC. Prior to that I worked in the investment industry for well over 15 years. This is most certainly not the way to solve the current economic crisis. Of course, I don’t have the answers, or I’d be rich myself. My initial take on all of this was that doing ALL (and I do mean EVERYTHING no matter how many Republicans cried into their tea bags) that was necessary to stop the foreclosure crisis and create new jobs would strengthen the economy, and have the ripple effect of increasing confidence in the market. But this is NOT JUST a confidence problem. The economy was a huge bubble and it’s now sprung a very big leak which is about to burst.I find it very difficult to believe that President Obama would approve of such a thing. “Bold Action” is his mantra. This seems pretty cowardly…Also, was this leaked intentionally for some reason? Like, to get rid of Mr. Tim Geithner for proposing such a piss poor “plan?”

  • AdyLeigh

    Bob, I also thought temporary nationalization of the banking system seemed like the smartest option once the banks started to fail. I STILL think that reestablishing the boundaries between investment banks and commercial or deposit banks must be done ASAP. I thought President Obama also favored such measures or was I hallucinating or something?BTW what’s being proposed now is more than “potentially dangerous measures.”Where’s GItheJoe? He’s actually studying this right now. I work in the finance industry but am so far removed from my education that it’s difficult for me to explain anything. He’d be able to clarify some things.

  • GeorgeJungle

    I will admit also that this is beyond my college economic level understanding. But it seems to me that Krugers main point of contention, in what he refers to as “zombie ideas” i.e. these are the same ole methods as always, in other words, he was looking for a much more radical solution.This Kruger may just be on the fringe, and the plan may actually have more broad base acceptance. The reaction by Wall Street when the plan is annoucned will be the best indicator if the market likes it or not. I’m betting they will.

  • SillyRatfacedGit

    No Ady, you did not hallucinate. Your recollections agree with mine.I am reluctant to say anything about a ‘leaked plan’. The leaks about the GI health care turned out to be bogus. This could as well. Your theory about potentially dumping the Timster caught my attention, it is a possibility.This leak may be an intentional misinformation leak to get Paul to explain why this half assed shit the the Republicanastycals want just won’t work in order to lessen the shock that the real plan is going to cause. It isn’t just me and Bob listening to Mr. Krugman.No matter what the plan is (even do nothing) the Greedy Old Pricks are going to squeal like stuck pigs. Remember that you heard that here first.

  • http://www.osborneink.com Matt Osborne

    GeorgeJungle,Krugman hasn’t proposed ANYTHING “radical.” Nationalization is as American as apple pie. Every week, the FDIC puts another bank into receivership. Why not do unto CitiBank as we do unto Podunk Bank? Why is Citi “too big to fail?”Krugman’s reference to “zombie banks” is grounded in the reality of Japan’s problems in the 1990s. The government’s fiscal policy wound up doing no good because they were propping up dozens of banks and companies that should have been allowed to die.

  • http://www.osborneink.com Matt Osborne

    SillyRatfacedGit,Actually there are several key Republicans on the record saying that we should resort to nationalization:http://osborneink.blogspot.com/2009/02/et-tu-greenspan.html

  • AdyLeigh

    Hey guys remember this?: “In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, “improper banking activity”, or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors’ money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other. We will take a look at why the GSA was established and what led to its final repeal in 1999.”http://www.investopedia.com/articles/03/071603.asp

  • SillyRatfacedGit

    Thanks Matt.Keep me awake.All generalizations are false, including this one.I did mean that collectively the GOP will bitch and moan about anything the Democrats do simply because it’s the Democrats doing it.But yes, many Republicans think that nationalization is a good idea, as do I. They’ll find something else to fault the plan over.So in spite of the fact that some Republicans will agree with this part of the plan, or that part of the plan, they will all scream anyway. It’s what they do. I stand by my original statement.

  • AdyLeigh

    I agree with you, SillyGit. Almost everything this Democratic Administration does is bound to make the Republicans squeal and complain and predict with the highest level of certainty that massive failures and dire consequences are sure to follow. But they can NOT seem to articulate a coherent idea or plan that they foresee succeeding. It’s the strangest thing, isn’t it?

  • http://www.netmediazone.com Tim

    The thing that amazes me is if we were shoring up some other countries economy by lending them money, much like China is to us, we would be threatening to cut them off if their banks acted like ours. In fact there would probably be mass protests here.I can’t believe that as the majority shareholder in AIG we are not represented in kind on the board. This is where we need a Buffet to step up or even ask someone like him or even him to take the reigns and get this crap straightened out. It seems they have paid out their necessary payments and they have been forced to somewhat capitalize since losing their AAA rating. It’s time to take that division cut it off and kill it. Place a 90 to 180 day moratorium on foreclosures and evictions, then fix those high interest ARMs by turning them into very low interest rate mortgages that adjust and cap at 6% in five years and let people repair their own damages.There is no “to big to fail” bank. That is just simply wrong. Break the mega banks up, re-enact Glass-Steagall and take over what needs taking over, but by all means remove those in charge of the banks and replace them.Pump the bank money into infrastructure, healthcare, education and new energy technologies.If all else fails pay the japanese to attack pearl harbor again and well…..

  • vyccan

    Please, don’t anyone throw stones at me… but why doesn’t Krugman share his insights, ideas, or whatever BEFORE the government puts a plan out there? Didn’t the president ask Krugman for his opinions/ideas earlier in the process when he criticized a previous scenario? I have a vague memory of PO saying that he is open to Krugman’s (or anyone else’s) good ideas. Why does K wait til something is on the table to say it won’t work? Seems to me if you have a better idea and you’ve been invited to share it with the presidential team, you should.

  • http://www.netmediazone.com Tim

    Krugman might have, don’t forget that Geithner was part of those who created this and he was right at the side of Paulson when the Bush administration yelled fire.Read this article in Rolling Stone, very very informative:http://www.rollingstone.com/politics/story/26793903/the_big_takeover

  • bibimimi

    Indeed, besides negativity, spitballs and schadenfreude, where’s a REPUBLIcan Plan?

  • jmy

    I know nothing about economics and I’m convinced that economist know nothing about economics. Now I respect Krugman was what he does, but I will say no matter what this administration does, even if it may be potentially good, Krugman will not like it. Krugman never really supported Obama, (I believe he supported Edwards) and went out of his way to bash Obama on anything, such as his health care plan, because it didn’t have a mandate like Clinton or Edwards – basically penalizing people who do not sign up for that particular health coverage. He often indicated that Obama wasn’t a “change” candidate or held conservative views, when in fact Obama, while his ideas are progressive, understood that no matter how liberal you are it is important to understand and look at all sides of the spectrum. Krugman doesn’t believe in that. He wants instant, radical change, but it just doesn’t happen that way.Case in point, the stimulus plan. Krugman wanted a much larger plan. Obama understood that it was more important to get legislation passed. That’s the mistake Clinton did with her health care initiative – no room for compromise. The stimulus plan needed 60 votes, with only 57 Dems. available, so he needed to make concessions to get some Rep. support. That’s what he did. That’s what you do in politics. It was more reasonable to start with 800 billion to have it cut to only to 787 billion, than 1.5 trillion and have it cut to 700 billion, if you understand what I’m saying.I’m not saying Obama isn’t subject to criticism, but Krugman has been irking me for a while because he still follows that meme of “that’s not the change that I voted for.”I’m willing to give Geitner the benefit of the doubt for now because he has to tackle so many things left behind by the previous administration, plus get a new staff, and he is under the microscope of The White House, Congress, The Fed, Wall Street, the tax payers, etc. Many people may not see that as an excuse, but it’s the reality of the situation, if you look at the magnitude of the crisis we are in, and put your self in his shoes, you would realize the enormous amount of pressure on him.I’m sure Obama is receptive to Krugman’s ideas, I’m just not sure Krugman is receptive to other ideas. Just my two cents.

  • vyccan

    Tim, I followed the link, but at page 3 in the article I admitted that I was way way out of my depth and gave up. Finance discussions have always confused me. I appreciated your reply though, Tim, and I’m hoping that if Krugman really made suggestions that they were considered seriously, and this leak really means nothing.

  • GItheJOE

    Ady, THANK YOU!Here you go ladies, gentlemen and neocons. THIS is why Obama and Geither are going through on what looks like a really dumb idea. This chart shows the OPTION ARMs resetting in 2011/12. What does that mean? That $1 Trillion dollars worth of mortgages are going to explode resulting in millions more foreclosures and a worse hit to the market.You can see that the last “BUBBLE” had a direct reflex on your 401K and the DIJA. Now, imagine a bubble twice that size happening again in 2 years.There isn’t one elected official that will let the DIJA go to 2000 points or let 20 million homes foreclose on their reelection year.This plan looks like shit but it is really the only way to unfuck the financial disaster created by the Graham/Leach/Billey Act and Clinton. Yes, I said Clinton. In 1999, our president allowed the GOP to strong arm him on the way out the door. This act enabled banks to make mortgages to poor people knowing they can’t afford them but didn’t give a shit because they were going to sell the mortgages before the ink was dry.This isn’t Obama’s mess and it needs to go away now! It is politically and patriotically the right move for the country. I have no desire to see what 1933 looked like.However, Timmy needs some damn help. He is running a skeleton crew and that isn’t fair or safe for our financial future as a country.

  • GeorgeJungle

    Thanks to GI I’ve been able to learn a lot more about this mess. I hadn’t even heard of the Graham/Beech/Billey act. I looked it up and followed some links, and I though others might like to read it too. I’m getting a real education here.This was from the page on Wikipedia on Graham/Beech/Billey act under “Criticism” under 2007 subprime mortgage crisis, to footnotes #3 on Wikipedia “subprime Mortgage crisis” page.http://www.aei.org/publications/pubID.28704/pub_detail.asp

  • Luke

    Krugman is an academic, firing from the safe NYT pages.Easy to do. Does he have a crystal ball? Does he know how to work in a charged political environment? Does he have a clue how difficult it is to deal with the mess that has been created?Also, to those advocating nationalization…Citibank is all over the world. Does anyone have any idea how difficult it would be to deal with regulators around the world? Under what authority could we nationalize an international bank? And how much time it would take? I would love to hear some answers.

  • SillyRatfacedGit

    If they can’t be nationalized, then they can’t be bailed out either.I say fuck Citigroup. Let them fail. They deserve it. I’m tired of of bailing out incompetent management. They should be sent to jail if they want a free meal.How’s that answer?

  • SillyRatfacedGit

    A more realistic answer is that anything too big to nationalize is just too big period. Citigroup should be split into the insurance company (The Traveler’s Group) and the banking company (Citibank). Then divest all of the foreign stuff. Then nationalize the domestic stuff. Then break it into pieces that are not too big to fail. Then set them free as private companies and don’t allow them to merge any more.All of these too big to fail things should be broken up and not allowed to ever merge again. This applies to all industries. Microsoft should have been broken up in 2002. The consent decree did nothing to restore competition in the effected market. The Bush DOJ did not do its job.Antitrust laws are supposed to be enforced.

  • prcleburne

    I am following the lead of my gods ( Bob, Huffington Post, Keith, Rachel ) on this issue. I am convinced Secretary Geithner’s plan may be fatally flawed, and that Nationalization is the way to go. Consequently, I have e- mailed the President (at whitehouse.gov ), asking him to listen to Paul Krugman.