WeAreTheKey

Paul Krugman is a well known economist who a lot of people were hoping might find a place in Obama's Admin., but of course he surrounded himself with the very banksters and criminals who got us into this mess in the first place. Anyway, here's an analysis of Tim Geithner's Big Solution, his bank/toxic asset concept that is essentially the core of Obama's economic recovery plan...



Despair over financial policy
The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And 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.

What an awful mess.

Yes, our government is either extremely stupid or extremely corrupt. Hmmm, which one is it?...
...Just keep giving money to the banks and their insurers. It didn't work? Okay, just a little more money. Still didn't work? Okay, just a little more. Pay no attention to that National Debt number, we'll get to that later. Yeah, it's by far the largest since WWII, but it doesn't matter, we have toxic assets to buy. Okay, now, just a little more money....