Paul Krugman does not like the new Obama asset plan

[waggy]

wow i don't like this plan at all. sure seems like the taxpayers are takeing all the risk.

 

[alchemize]

It's like a government subsidized WOOT bag-o-crap. Chip in $.03, government pays $.97. Maybe you get something good, but probably it will be a bag-o-crap.

 

[winnar111]

Originally posted by: zephyrprime

Originally posted by: Lemon law
Obama on the other hand has to have a plan, be consistent, does have to cat herd other politicians, and worse yet, Obama is more or less stuck with trying to make the Hank the crank Paulson plan be part of his consistency plan. And even at this late date, I very much wonder if anyone knows how to toxic some of these assets are, how deep the mess is, and not getting treasury staffed up is not helping.

Paulson changed course on his own plans three times during his reign. Since paulson was not consistant, I don't see why obama would have to be.

Probably because Paulson is no longer the treasury secretary, and everyone knew he was only going to be around for 3 months.

 

[Fern]

Originally posted by: senseamp
Obama should fire Bernanke and replace him with Krugman.

I don't know if you are joking or not, but the President can't do that. He doesn't have the power to fire them.

They stripped that power from the President ages ago so they couldn't politicize the Fed.

Fern

 

[Fern]

Originally posted by: waggy
wow i don't like this plan at all. sure seems like the taxpayers are takeing all the risk.

Yes, we are.

I wonder how much money the fed is going to put kick-in in total under these non-recourse loans?

I hope somebody is keeping track of all this gov money, I'm losing count

Fern

 

[waggy]

Originally posted by: Fern

Originally posted by: waggy
wow i don't like this plan at all. sure seems like the taxpayers are takeing all the risk.

Yes, we are.

I wonder how much money the fed is going to put kick-in in total under these non-recourse loans?

I hope somebody is keeping track of all this gov money, I'm losing count

Fern

from how i understand it it seems like the business's investing lose a small portion and can walk away anytime. Where th goverment will lose what 95% (well the taxpayers will). on buying toxic assets..this does not seem like a smart idea.

 

[alchemize]

More wingnuts and sore losers...

 

[fskimospy]

What I find funny is that if Obama did what Krugman wants him to do, this board would be exploding with right wingers shrieking about socialism and nationalization. Methinks some people are just looking for reasons to cry no matter what.

 

[alchemize]

Originally posted by: eskimospy
What I find funny is that if Obama did what Krugman wants him to do, this board would be exploding with right wingers shrieking about socialism and nationalization. Methinks some people are just looking for reasons to cry no matter what.

What I find even more funny is that you're more concerned with what "right wingers" might be doing rather than the criticisms of the plan, which is basically the same plan the Bush admin had.

from my link:

So why isn't the Obama administration pushing for FDIC receivership? "Political influence of big banks," the economist says.

Meet the new boss, same as the old boss.

 

[Thump553]

Originally posted by: Fern

Originally posted by: waggy
wow i don't like this plan at all. sure seems like the taxpayers are takeing all the risk.

Yes, we are.

I wonder how much money the fed is going to put kick-in in total under these non-recourse loans?

I hope somebody is keeping track of all this gov money, I'm losing count

Fern

Unlike PJ I generally respect Krugman's opinions on economic matters quite a lot. Obama's chosen course of action has nothing whatsoever to do with PJ's perceived "anti-business" agenda. In fact that partisan swipe is patently false. What Obama has proposed is a public-private joint venture to buy "toxic assets", 7% of the money private, 7% public (from TARP funds) and the balance guaranteed loans by the federal reserve. As I see it this plan has several advantages:
-lessened incentive to bargain down the price of toxic assets, thus moving them off the bank's books faster and getting banks back into loaning and regenerating the economy,
-since only 7% of the money comes from TARP funds, and the vast majority of money comes via loan guarantys from the federal reserve there is no pressing need for Congressional action. In other words this plan can be implemented now rather than debated in Congress for the next year or two. Krugman's concepts would (unfortunately) totally fail on this extremely important point.

I'm not exactly thrilled with the plan-I personally despite government subsidized business (like the only successful business GWB ran, the Texas Rangers). The public is taking on the vast majority of the risk here. But Obama is faced with a bunch of bad to worse options, and frankly this looks to me like the best of bad set of choices.

I just hope Obama-and Congress-come up with real and effective regulations for the banking industries going forward. That is the most important thing but it will drive people like PJ crazy ranting about being anti-business. We should now allow these clowns to do us in again.

 

[Fern]

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.
Hmmm... The stock market is reacting well. I haven't had time to look to see what sector is pushing up the index yet, I assum it is banks though.

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.
I've also thought they weren't as worthless as many said, and argued so here numerous times. I guess now we'll see

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.
Damn, I'd like to get into some of that action. So, the government's gonna hand out huge non-recourse loans so people can go 'play' with CDO's? I bet it will just be big fat cats, probably the same who created this mess, just under different names (they'll reform 'new' legal entities with new names, but same players behind the scenes).

This strikes me as an 'upfront' government bailout for these investors. It will never have to go through Congress again, just cancel the non-recourse debt and be done with it.

I'm interested to see just how much money the private investors have to put up, if it's just .03 on the $1, I'm not sure I understand how this restores confidence in MBS/s/CDO's. If it's only .03 we need to whip up an ATPN fund quick and get in on this boys!!!.

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.
I don't often agree with him. But I do here.

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.
Yes, if the banks have already basically written these things down to zero (as 'mark-to-market' requires), they may have huge profits as these MBS's/CDO's are sold for a much higher amont. I.e., the government's non-recourse loans are gonna go straight to their bottom line. I suppose the government will recoup 35% in income tax (assuming they are purchased from US banks). I see the opportunity for shens here as regards foreign bamks, but that's a huge whole other issue.

I'd say it was phantom/paper income, but the govrnment is actually putting money. In effect, the losses have been transfered from the banks Profit & loss, over to the government's where it won't be regonized (at least until any 'defaults' become official).

What an awful mess.
What's new?

See bolded above.

Man, I see a ton of ways to play this program for personal profit and government loss. Weeally need to see th erules on this. I hope we get the transparency we've been promised.

Edit: Just thought of an interesting math excercise (at least to me anyway). I wonder what the ratio of increased stock market value is to the expected amount of fed money to banks for toxic assets?

Fern

 

[chess9]

Yes, Krugman is spot on here. Nationalization of these banks is the best recourse, and the cheapest route.

Given the government's willingess to give away the candy store, I'd guess that we will be paying 80 cents and the investors 20 cents of every dollar, at best. Remember, these are the worst of the worst toxic debts, for the most part. But, will this approach work? Why try something that might fail with such an explosive bang?

Sweden handled this right in the past. Why isn't that solution so good? Is Obama sensitive about being called a Socialist? If it works, and the best way, then do it. Screw ideology. We've taken over plenty of banks, just not on this scale.

-Robert

 

[fskimospy]

Originally posted by: alchemize

Originally posted by: eskimospy
What I find funny is that if Obama did what Krugman wants him to do, this board would be exploding with right wingers shrieking about socialism and nationalization. Methinks some people are just looking for reasons to cry no matter what.

What I find even more funny is that you're more concerned with what "right wingers" might be doing rather than the criticisms of the plan, which is basically the same plan the Bush admin had.

from my link:

So why isn't the Obama administration pushing for FDIC receivership? "Political influence of big banks," the economist says.

Meet the new boss, same as the old boss.

There are lots of reasons why Obama isn't nationalizing the banks, and yes I imagine a bunch of them are political ones. I happen to agree with Krugman, I think we should be spending more on stimulus and we should be forcibly cleaning up these fucked up institutions. It doesn't mean that I don't find the criticisms coming from PJ and others incredibly dishonest though.

Are you telling me that you want Obama to do this? That you wouldn't screech "SOCIALISM" if he did it?

 

[alchemize]

Originally posted by: eskimospy

Originally posted by: alchemize

Originally posted by: eskimospy
What I find funny is that if Obama did what Krugman wants him to do, this board would be exploding with right wingers shrieking about socialism and nationalization. Methinks some people are just looking for reasons to cry no matter what.

What I find even more funny is that you're more concerned with what "right wingers" might be doing rather than the criticisms of the plan, which is basically the same plan the Bush admin had.

from my link:

So why isn't the Obama administration pushing for FDIC receivership? "Political influence of big banks," the economist says.

Meet the new boss, same as the old boss.

There are lots of reasons why Obama isn't nationalizing the banks, and yes I imagine a bunch of them are political ones. I happen to agree with Krugman, I think we should be spending more on stimulus and we should be forcibly cleaning up these fucked up institutions. It doesn't mean that I don't find the criticisms coming from PJ and others incredibly dishonest though.

Are you telling me that you want Obama to do this? That you wouldn't screech "SOCIALISM" if he did it?

I believe there was a thread on this a while back...if he "socialized" banks, then yes, I would be screaming socialism. But if he instead went the FDIC receivership route as has been proven to work in the past (and basically what Krugman is saying, ick that makes me feel dirty), that would make sense. Instead, he's just created more government debt with a program that I don't think will work very well at all.

 

[Craig234]

Originally posted by: Fern
[See bolded above.

No. Use proper quotes.

 

[cubby1223]

Originally posted by: ProfJohn
Two posts on Krugman's blog follow.

When one of Obama's biggest fans starts to question him it is a bad sign.
This isn't some NationalReview writer or right wing talking head. This is one of the best known and perhaps respected liberal voices in the country.

Hmmm, if Krugman is deserting Obama, then perhaps it's about time for me to lighten up on criticizing Obama?

So much for Krugman that the stocks are way up today. Does that say something against far-left economists?

 

[fskimospy]

Originally posted by: cubby1223

Originally posted by: ProfJohn
Two posts on Krugman's blog follow.

When one of Obama's biggest fans starts to question him it is a bad sign.
This isn't some NationalReview writer or right wing talking head. This is one of the best known and perhaps respected liberal voices in the country.

Hmmm, if Krugman is deserting Obama, then perhaps it's about time for me to lighten up on criticizing Obama?

So much for Krugman that the stocks are way up today. Does that say something against far-left economists?

And the stock market went way way way up based upon speculative, irrational behavior centered around atrociously irresponsible lending practices on badly performing assets. Does that say something about how much the stock market's value relates to the overall economy?

 

[JEDIYoda]

Originally posted by: alchemize

Originally posted by: eskimospy
What I find funny is that if Obama did what Krugman wants him to do, this board would be exploding with right wingers shrieking about socialism and nationalization. Methinks some people are just looking for reasons to cry no matter what.

What I find even more funny is that you're more concerned with what "right wingers" might be doing rather than the criticisms of the plan, which is basically the same plan the Bush admin had.

from my link:

So why isn't the Obama administration pushing for FDIC receivership? "Political influence of big banks," the economist says.

Meet the new boss, same as the old boss.

so just keep crying alchemize....

 

[alchemize]

Originally posted by: JEDIYoda
I'm a jackass....

Don't be so hard on yourself.

 

[Balt]

Does this mean that *GASP* all of the Right's whining about how the "liberal media" gives Obama a free pass will have to stop?

OHHHH THE HORROR!!!

 

[alchemize]

Mish's analysis

Few key points:

The Government has agreed to finance 93% of the loan, and it is a no recourse loan. This provision is in place for one reason only: To insure that investors overpay for bad bank assets, at taxpayer expense.

Geithner and Bernanke clearly do not understand the problem. The reality is are few credit worthy borrowers to lend to and therefore no reason for banks to lend. Moreover, with rampant overcapacity and a slowing economy there is no good reason for credit worthy borrowers to borrow.
Thus, the idea that credit will start flowing again if bad assets are removed from bank balance sheets is patently false.

My comment: This is the equivalent of drinking to cure a hangover. The "hair of the dog" plan.

 

[alchemize]

Another good critical article:

Link

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.

Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

Once we get the "bad assets" off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they'll sit there and say they are lending while waiting for the economy to bottom.

Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they'll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today's 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don't have room to take on more debt, even if the banks are willing to give it to them.

 

[Fern]

My comments on parts of Krugman's second piece:

More on the bank plan
Why was I so quick to condemn the Geithner plan? Because it?s not new; it?s just another version of an idea that keeps coming up and keeps being refuted. It?s basically a thinly disguised version of the same plan Henry Paulson announced way back in September. To understand the issue, let me offer some background.
Yep, nothing new.

Geithner, as a long time Chairman of the NY Fed, has long known about this problem. I find it odd that he hasn't settled on a solution much earlier, that could ominous for a couple of reasons (he's not capable, or he is and knows the probem may well be bigger than any solution we can muster)

So now we have a bank crisis. Is it the result of fundamentally bad investment, or is it because of a self-fulfilling panic?
Well, we know selling and buying CDS were a 'gamble' (on bonds not owned, and mulitple times for any one bonds) and was fundamentally flawed.

Mortgages (and derivitives like MBS's & CDO;s)? Yeah, some were bad investments. Too many stories of people making low wages buying McMansions etc. How many were bad investments? I think that's still an open question, and as the economy shifts so does the answer. Better econopmy, more demand for homes and less forclosures etc. And vice-versa.

But if you think that the banks really, really have made lousy investments, this won?t work at all; it will simply be a waste of taxpayer money. To keep the banks operating, you need to provide a real backstop ? you need to guarantee their debts, and seize ownership of those banks that don?t have enough assets to cover their debts; that?s the Swedish solution, it?s what we eventually did with our own S&Ls.
Seems to me either way it's just transfering debt from one party to another. Looks like the poop is gonna roll down hill into taxpayers' lap either way. Bankrupty could change that, but nobody seems to willing to let that happen.

...the Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines, so it has produced what Yves Smith calls ?a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for [I don't think I can finish this on a Times blog]?
Might be the 'real info' on this would scare the bejesus out of everyone and worsen the problems.

Why am I so vehement about this? Because I?m afraid that this will be the administration?s only shot ? that if the first bank plan is an abject failure, it won?t have the political capital for a second. So it?s just horrifying that Obama ? and yes, the buck stops there ? has decided to base his financial plan on the fantasy that a bit of financial hocus-pocus will turn the clock back to 2006.
It really isn't Obama or Geithner's fault. I still say it goes back to late 90's and Congress. The rules (or deregulation) set up in the late 90's looks to have prevented anyone in authority from being aware of this growing problem (there was no reporting or regulation), so I don't see how it's the GWB admin's fault either. Could the Senate & House banking committes been made aware of this in some way? IDK.

Fern

 

[ProfJohn]

Originally posted by: miketheidiot

Originally posted by: K3N
Oh yeah baby, now i'll get know what it was like living under President Jimmy Carter , i'm a survivor YO!!!

well, hopefully we'll have good music again at least

Umm Jimmy Carter was President from 1977 to 1980.

Could you please remind me what 'good' music came from that era??

Look at who won Grammy's for best new artist during his term: Debby Boone, A Taste of Honey, Rickie Lee Jones and Christopher Cross
All of whom were pretty much flash in the pan success stories.

You have to remember that Carter was president during the end of the disco era. Not exactly a time known for great music.

 

[Steeplerot]

Originally posted by: ProfJohn
Could you please remind me what 'good' music came from that era??

Look at who won Grammy's for best new artist during his term: Debby Boone, A Taste of Honey, Rickie Lee Jones and Christopher Cross
All of whom were pretty much flash in the pan success stories.

You have to remember that Carter was president during the end of the disco era. Not exactly a time known for great music.

77-80 was probably some of the best music ever imo, you just obviously lack taste to bring that bubble gum pop and disco stuff up.


The Clash, Ramones, Crass, The Cramps, Sex Pistols (or even better PiL), The Police did some of their best stuff, Pink Floyd was pretty good then.
Some of the experimental/underground stuff was brilliant (Throbbing Gristle, Television)

This was the era of the death of bad corporate US rock and the rise of CBGBs and the NYC scene. Lets not even get into stuff going on in Germany like Einstuerzende Neubaten (and early Nick Cave) or Nina Hagen. You have no clue.
Music nowadays is pretty much rehashed 80s, which was watered-down late 70s.

Sorry you missed out, it was a GREAT time back then -and disco STILL sucks.

This band sucked? You would think any rightie or libertarian would like that song.
/music rant off

Edit: Since this is a politics forum I tried to keep the list somewhat political type bands back then that rocked. RIP Joe Strummer and Lux Interior from the Cramps!





Oh yeah, and my GF says she will kick my ass if I don't mention David Bowie of course :roll: