The Very Short List of Things I Know About Geithner's Plan
Here's what I know, or at least what I think I know. Not what I suspect, nor what I hope, which are two other, somewhat longer, lists.
1. I'm not smart enough, prescient enough or sufficiently educated in ecomomics to know if this will work, do nothing or make things worse.
2. People who are obstensibly smart enough and sufficiently educated in economics to know if this will work, do nothing or make things worse disagree vociferously--which is, after all the only way anyone is allowed to disagree anymore.
3. If people who are smart enough and sufficiently educated disagree, that indicates that they don't really know themselves whether if it will work, do nothing or make things, nor do they know if any of the other things being suggested will work, do nothing or make things worse.
4. The idology and emotional state of people arguing about this has a lot do do with their opinion on whether it will work, do nothing or make things worse and nothing at all to do with whether it will, in fact, work, do nothing or make things worse.
5. It sounds plausible to me, if, and only if, the the price now being offered for the assets is less than the stream of income would indicate they should be worth.
6. If the housing market has, in fact, bottomed out, as today's surprise stats seem to indicate, these assets probably are undervalued. If today's stats are a dead cat bounce (a metaphor my cats want you to know they strongly object to, incidentally), then whether they're undervalued is still an open question. If the housing market takes another dive, the taxpayers get screwed under this plan.
7. That screwing is a contingent possibility, not a foregone conclusion.
8. Doing something more drastic, as many are insisting we absolutely must do, has a non-zero chance of setting off a second panic that will push us into an actual depression. They may be right, they may be catastrophically wrong and they don't know which.
9. Some people appear to believe that we don't really need banks, credit or insurance to have a functional economy.
10. Others appear to think it would be better to do without banks, credit or insurance for a while than to take a chance that one of the evildoers escapes financial punishment for his/her misdeeds. Many of the people talking this way are Republicans.
11. This is what we're doing. Regardless of whether we think it can work, we'd damn well better hope it does.
12. Anyone who thinks that the success of this--or any other--turnaround plan doesn't depend as much on psychology and perception as the objective economic data hasn't been paying attention for the last several months. That being true, there will be a window of time, sometime between the date of implementation and the date we have sufficient data to determine whether the thing is a working, where continued carping and naysaying by prominent figures in the world of politics and economics will become little more than an act of willful malicous social vandalism.
This is about as honest assessment of the plan as I have read anywhere.
March 23, 2009 9:51 PM | Reply | Permalink
Yep. What you said, NCSteve.
March 23, 2009 10:10 PM | Reply | Permalink
A little humility at last. Steve, I could not agree with you more.
I really think you need two years of hard study--sans frat clubs--to fully integrate this material into some meaningful picture.
I do know that some of the lobbyists know exactly what they are doing and are attempting to line their own pockets, save their own skins and help their ideological compatriots to keep power and money in the hands of a few.
March 23, 2009 10:17 PM | Reply | Permalink
AMEN
March 23, 2009 10:23 PM | Reply | Permalink
I've never seen a dead cat bounce. But I have seen some live ones do some crazy sh#t. (Being a dog person, cats are confusing and scary... what are they thinking, and what's with all the ignoring you? But let us save that for another day.)
A well-crafted post. In Rummy-speak, it's something about the known known, the known unknowns, the unknown knowns and the unknown unknowns. (Take shot of hard liquor of your choice and repeat.)
A well-crafted post.
Rec'd!
March 23, 2009 10:39 PM | Reply | Permalink
If you want a cat to pay attention to you, the easiest way is to pointedly ignore the cat.
March 24, 2009 12:34 AM | Reply | Permalink
An even more effective way to get a cat to pay attention to you is to actively dislike cats. Contrarians that they are, they'll be all over you.
March 24, 2009 12:23 PM | Reply | Permalink
I can testify to that. I am thoroughly allergic to cats and really do not like to be around them, but they just love me whenever I walk into a house with one. Strangely, my wife is even more allergic, but they do not like her nearly as much. Thank heaven for small blessings, I suppose.
March 24, 2009 2:44 PM | Reply | Permalink
Same thing for my husband who is also allergic....fifty people in a room and the cat will make a beeline for him.
March 24, 2009 6:38 PM | Reply | Permalink
I used to believe that cats were dumb. What I later discovered is that what I mistook for stupidity was actually feline indifference, silly me. Cats can be as clever and communicative as dogs - when THEY want something. As for what we humans may want from our cats - well...
Also, cats aren't so much loyal as tolerant. Dogs are the 'toadie' of pets, working overly hard to reinforcing our already inflated human egos. Where as cats bestow upon us the gift of, ahem, humility. ;)
March 24, 2009 8:49 AM | Reply | Permalink
I used to live on a very busy street, ground level, in Manhattan. One day, a friend was in my apartment shortly before I arrived home. She reported that my cat had gone to the door of my apartment, tail thumping and meowing, in anticipation of my arrival, about one minute before I approached the front steps. In other words, the cat distinguished my footfalls from the rest of the city/traffic noise, halfway down the block. Whatever else they are, they're amazingly sentient predators.
March 24, 2009 12:39 PM | Reply | Permalink
One of two things seems true:
1. You come home same time every day and your cat, like most animals, has a built in clock that can work to the minute.
2. You walk way to hard.
March 24, 2009 8:02 PM | Reply | Permalink
True science: we domesticated dogs but cats "domesticated" themselves.
We domesticated dogs because we wanted them to do stuff for us. Cats just started hanging out around us to exploit the food supply created by our grain stores and evolution selected for less fear of humans. Next thing we knew, we were doing stuff for them.
March 24, 2009 12:44 PM | Reply | Permalink
Exactly. Goes to show how smart cats really are. I asked mine about the whole AIG situation and he hacked up a hairball. I knew what his answer was. Heh. ;)
March 24, 2009 7:19 PM | Reply | Permalink
I happened to ask my daughter's cat the same question. He said some dirty rotten dogs are responsible. I think he's right.
March 24, 2009 8:05 PM | Reply | Permalink
You've never seen a dead cat bounce? Just stick an airhose in one end, plug the other end, then dribble them like any basketball.
March 24, 2009 7:58 PM | Reply | Permalink
Good post, NC Steve. I'm frankly amazed that the experts so far are almost entirely useless. None of them agree with each other, and no one offers anything other than attacks on the current proposal of the day. Average people are totally confused, and the experts and the equally ignorant punditry only confuse them worse.
One thing is clear is that ANY PLAN that is actually offered is terrible. Sort of like the "grass is greener", the plan that the government isn't backing is always better. Until they pick it next, and then it is a terrible idea.
And then there is the usual American need for instant gratification and painless free-lunch solutions. Solving the bank crisis will be expensive and painful, but necessary if we want to have an economic future.
March 23, 2009 11:00 PM | Reply | Permalink
One more thing:
"Doing something more drastic, as many are insisting we absolutely must do, has a non-zero chance of setting off a second panic that will push us into an actual depression. They may be right, they may be catastrophically wrong and they don't know which. "
Non-zero, I like that.
The Other solution is always easier and better because they don't discuss the costs of it upfront. Like paying trillions of dollars and owning 100% of the garbage assets, instead of merely subsidizing their sale.
Also a single case (the rosiest scenario) shouldn't be our guide for action. That would be like going into a war and basing strategy on the Grenada Model, as if other types of wars didn't happen (Vietnam, or Iraq ... they're all bad in their own unique ways). France tried to nationalize its banks in the 80s. It failed and had to take them over a second time several years later.
There's no free lunch. And I bet punishing execs won't be much consolation if you lose your job for a few years or lose your house or can't get a loan.
What was that saying: you can either get even or get ahead, but not both?
March 23, 2009 11:10 PM | Reply | Permalink
Brilliant post NCSteve.
Deep Thought:
Why are all the Very Serious people on the Internets proffering The Swedish Money Miracle™ not doing the (metaphorical) pitchfork-and-torch thing themselves - in person - if they're so sure TSMM™ works?
March 23, 2009 11:27 PM | Reply | Permalink
If the housing market has, in fact, bottomed out, as today's surprise stats seem to indicate, these assets probably are undervalued.
Hmm.
Here's someone who, unlike the average newspaper reporter, actually knows what he's talking about.
N.B. If real estate prices stop falling, that's good news for the economy, but not such good news for owners of MBSs, etc., especially of the post-2004 classes the majority of whose mortgages are or will be underwater when prices stop falling. It is the mortgagor's ability to meet the mortgage payments which determines the value of the MBS, and that ability is dependent not on home prices but on continuing employment at reasonable wages.
March 24, 2009 12:08 AM | Reply | Permalink
Prices are still going down. Volume in Feb was up over January which had been down a lot. Yr/yr Feb is not up.
Curious how people cherry-pick fractions of the stats relevant to an issue, huh.
March 24, 2009 4:10 AM | Reply | Permalink
Yeah, Steve, I was with you until you got to that "If the housing market has, in fact, bottomed out, as today's surprise stats seem to indicate..."part. No, I don't know that housing prices will continue to decline, but to use your formulation, I haven't seen anyone "obstensibly smart enough and sufficiently educated" in the field who claims that housing prices have bottomed out. To the contrary, most real estate agents agree prices haven't bottomed. They still say that it's the best time ever to buy, but that's because their programmed to say that.
So where does that leave us w.r.t your argument? Yup, the taxpayers are likely to lose money. My guess is we're on the hook for what these doofuses in the Commanding Heights have done, no matter how you slice it, but it makes sense to go in with our eyes open.
March 24, 2009 9:55 AM | Reply | Permalink
Okay, you're right. First, I don't know enough to know whether a significant uptick in home purchases when all the experts were expecting another downtick means anything or even is capable of meaning anything. Second, that's not really what I even meant--what I should have said was "if the uptick means we're approaching a bottom or that it's now possible to envision whereabouts the bottom may be" [insert joke re not being able to find own ass with a flashlight and directions from Mapquest here]. Certainly, where and when of the bottoming is going to be different, and probably worse, in, e.g., Florida and California, than elsewhere.
However, if you ignore the "as today's stats seem to indicate" part, I think what I said was true--at least as a logical construct. Whether it's a meaningful statement is open to debate.
March 24, 2009 12:11 PM | Reply | Permalink
Undervalued or not, the hold up for selling this junk is that the banks want .70 on the dollar, the investors want to pay .40. Homes will never fall to zero, so it is more a question of how much loss, and what time frame for some recovery in prices. These toxic assets are not worth nothing. And actually Fed printing money can help recover it somewhat with inflation.
March 24, 2009 10:57 AM | Reply | Permalink
NC Steve, if you can recall the stuff you blog here you may remember a few days ago that when it was pointed out that Geithner's Chief of Staff Patterson might have a Wall Street bias as a former Goldman Sachs lobbyist, you said 'how noble' it was he was taking a pay cut.....etc etc
Patterson did not need confirmation, now Obama nominee Gensler, also a former Goldman Sachs employee and swaps cheerleader, does need confirmation, and apparently 'conspiracy minded' Frank thinks Gary Gensler is not the guy for the job due to his history on Wall Street.
As Josh notes on the front page, Frank is holding up the confirmation of Gensler as head of Commodity Futures Trading Commission, due to his Goldman Sachs history pushing deregulation and Credit Default Swaps. link
March 24, 2009 1:14 AM | Reply | Permalink
Sanders is holding up Gensler.
March 24, 2009 4:01 AM | Reply | Permalink
Actually, I said I think the guy's entitled to the benefit of the doubt until he actually does something corrupt rather than assuming he's going to be corrupt based on what he did before he joined the government.
That's pretty much the exact opposite of how it works for people in Congress when they're considering, or merely concern trolling about, executive branch appointments, but that doesn't change my view.
March 24, 2009 9:58 AM | Reply | Permalink
Nice list Steve. I've got an issue with 8
8. Doing something more drastic, as many are insisting we absolutely must do, has a non-zero chance of setting off a second panic that will push us into an actual depression. They may be right, they may be catastrophically wrong and they don't know which.
I think this point should be "GETTING THINGS WRONG will push us into an actual depression".
This plan might be wrong, we're still waiting for more details and the stress-test. And we don't know what Geither knows. But on the surface, and given the rough stress-tests already conducted, it looks like Geithner is wrong and this isn't just a liquidity crisis. And that's my worry about this plan.
March 24, 2009 3:25 AM | Reply | Permalink
That's what Krugman is arguing. But why isn't it a liquidity crisis? The credit markets ARE frozen, and banks are crippled and won't/can't lend. Perhaps PK is right that the assets are worthless, but then we have TWO problems. Why must it be either/or?
March 24, 2009 9:31 AM | Reply | Permalink
observer, I don't know quite how to grab this. But the short version is that a solvency crisis is a liquidity crisis plus. So that's the sense in which it's an either-or proposition. There's illiquidity in some parts of the market, depressed asset-prices in others. And we want to know whether the 'real', i.e. long-term, value of the banks assets are such that they are solvent. There's a certain amount of indeterminacy to that question, but if the big banks face another 600B in writedowns, as some suggest, some or most are clearly insolvent and need to be liquidated or brought into conservatorship.
March 24, 2009 6:40 PM | Reply | Permalink
Which tests have been conducted, and what were the results? I see what Treasury is trying, but I do doubr the feasibility. I am getting Titanic flashbacks.
March 24, 2009 10:31 AM | Reply | Permalink
There's this old one cited in the NYT
http://dealbook.blogs.nytimes.com/2009/02/13/under-one-stress-test-big-banks-look-anemic/
March 24, 2009 11:09 AM | Reply | Permalink
Naive question here. It is just the American branches of American banks that can sell "legacy" assets and securities into this program?
The reason I ask is that world markets seem to be reacting well to Geithner's plan, lead by financials. If they're not included in the deal (even if only by some backdoor), then why the positive reaction? If they are (again, even if only by a backdoor) then Houston, we've got a problem.
March 24, 2009 6:12 AM | Reply | Permalink
You can't separate American branches from global banks. Citibank for instance has 700 Billion in worldwide deposits. There's no "American" Citibank, just this global behemoth.
The stock market reacted to the govt finally having some sort of feasible plan and less uncertainty. (It hates uncertainty)
March 24, 2009 9:29 AM | Reply | Permalink
Slightly OT, but of some import, IMHO...
The reason the markets tanked so badly on Geithner's original framework announcement is that his boss set him up for failure the night before in his first presser.
Obama said specifically that Geithner would be introducing a very detailed plan to deal with these toxic assets. Geithner never intended to reveal anything more than the framework that he did.
So, part of the "Geithner problem" that the media has been making hay with is because Obama hung him out to dry the night before Geithner's big announcement.
I know there's a lot of complaining (or outright anger) about Geithner. But I think the rational approach is to give the guy time. Fortunately, his boss appears to realize that.
March 24, 2009 3:17 PM | Reply | Permalink
One of my favorite adages, "Economics is the only field in which two people can share a Nobel Prize for saying opposing things."
I'm still concerned about how these assets will be priced, but the beauty of introducing this much capital into the markets is that inevitably inflation will rise, so the nominal price of these assets will rise no matter what.
Personally, my only concern at this point is whether the Fed can be trusted to reduce the monetary reserves as the economy turns around. They didn't do it post S&L or post dot-com. One of the nice things about the TALF and other auction facilities introduced is that they're self-expiring. The loans come due and as of right now cannot be extended or renegotiated. So I suppose as with all things in the macroeconomy, the only thing we can do is wait and see.
March 24, 2009 9:49 AM | Reply | Permalink
OK NCSteve, but what about, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER, GEITHNER,
and OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS, OFF WITH THEIR HEADS.
In other words, what will we do with ourselves if we can't scream and moan and complain about how Obama is destroying the economy and won't listen to St. Paul? Patience: What a Uniquely NonAmerican Concept!
March 24, 2009 10:13 AM | Reply | Permalink
More contentless blather from an Obama-worshipping Candide.
March 24, 2009 10:27 AM | Reply | Permalink
Ellen, I've noticed that you take pot shots, drive-by style, at those of us commenting on some given post without offering much of your own comments for criticism. Please enlighten us now with a few cogent pearls of your own wisdom regarding Steve's post.
March 24, 2009 11:54 AM | Reply | Permalink
Uhm, she did. See above.
March 24, 2009 12:04 PM | Reply | Permalink
She still has an affinity for bullet spraying, IMHO.
March 24, 2009 12:19 PM | Reply | Permalink
Sore Loser!!!!
March 24, 2009 4:41 PM | Reply | Permalink
Rec'd! It's refreshing for someone to admit they don't understand world economics in a time when so many people are making a fool of themselves by reading a few economists and parroting those opinions as their own. Reading a few writings does not make someone expert enough in world economics to form an opinion.
March 24, 2009 10:26 AM | Reply | Permalink
Waddaya mean? We gotta have a PHD in economics to know that Geithner is sleeping with the old money clan? No, I can think for myself, thank you, and form an opinion, with or without the PHD in economics. Some of the "expert opinions" are very obviously bought.
March 24, 2009 8:33 PM | Reply | Permalink
Rec'd.
In higher education (and every other realm of education as well) "critical thinking" is always listed as one of the abilities our students should leave our institution with.
What I find many times is that what students (and faculty) think of as critical thinking is really just criticism, with no recognition of nuance, contradictory evidence, or acknowledgement of uncertainty. Very similar to "expert" commentary at this point, and identical to political commentary.
Well-written post, as usual.
I have to object to the cat reference, of course.
March 24, 2009 12:00 PM | Reply | Permalink
Good post, recommended. I think a large percentage of the problem right now is that we are all in the same boat and have no idea if Geithner's plan will work. The country is going all in and we have no idea what cards we're really holding. It certainly does test one's faith in our institutions.
March 24, 2009 12:04 PM | Reply | Permalink
Probably more like putting someone we barely have covered all in based on having seen one of our own cards and a guess about theirs. If we lose, we'll have a chip and a chair and that's about it.
March 24, 2009 12:19 PM | Reply | Permalink
I think you’re attempting to pre-empt criticism by claiming the economic crisis is too complex and uncertain to even question or assess the administration’s course of action.
1. You confess ignorance to imply that no one else would be able to understand or assess the plan. I admit my personal ignorance but I can seek out different experts and assess their conclusions. To say no one can really know is like saying, “evolution is just a theory.”
2. “These are vociferous times,” he shouted. (Note: These three positions aren’t the only outcomes. The plan may work but not address the underlying fundamental problems to prevent a future meltdown- IOW, enabling)
3. ? If people disagree, they can’t know what they’re talking about because they disagree?
4. Not if that ideology is "right." And, yes, people are “emotional,” which doesn’t mean they can’t think straight. The administration says we should be mad and claim they are too (could this be clouding their judgment?).
5. See next.
6. It’s not whether housing bottoms out, but whether it rises back to where it was (not likely anytime in the near future). And even if it the market has stopped failing, defaults on mortgages will continue for some time.
7. I think it’s the degree that we get screwed that is an open question. The idea that the government will recoup some windfall seems less likely than any other scenario. The question of moral hazard and rewarding bad actors must be considered, too.
8. The only panic over reform is on Wall Street (and they should be afraid; be very afraid).
9. I haven’t seen anyone posit this (though we may not need banks as much as we go broke).
10. "If I only had a brain," said the man made of straw.
11. Thank you sir, may I have another.
11. Well, that should shut critics up (the pump don’t work ‘cause the vandals stole the handles). On the contrary, we may be running out of time to stop this train going the wrong way on a one-way track. I’ll say it again. It is about confidence in the banks and in the financial sector who somehow, apparently it doesn’t matter how or why, lost our confidence. It is a confidence game they’re playing. If we artificially restore confidence in these guys, who is the sucker in this con game?
March 24, 2009 12:49 PM | Reply | Permalink
Maybe we *can* really know the true root problems with our economy currently, but that doesn't mean we know them now, or have enough information regarding the real cause of our current situation. If it was obvious then some kind of consensus could be reached. Those who didn't join the consensus could have their opinions shown as biased, as with the Intelligent Design folks in the evolution debate.
The fact that we have multiple 'experts' so certain that solving this or that problem using this or that strategy, when said strategies are so wildly different (from do nothing to do everything), speaks to our fundamental inability to reduce this problem to something we can fully grasp. There are too many words like "Might" and "Maybe" floating around.
Twenty years from now we can look back and start to formulate theories as to true causes and what (hopefully) eventually solved the problem. But even then there won't be a 'consensus' - just look at The Great Depression.
Regarding the plan itself, sure - you can understand its mechanics pretty easily. Confidently predicting its success or failure, though, implies that you also have a thorough understanding of the causes of our current slump, and what needs to happen to pull us out of it. If it was really that simple, and it was actually feasible (unlike simply seizing banks with TRILLIONS in deposits), it probably would have been done already.
Regarding critics of this plan, like Krugman - it's easy to sit in academia and show up on talk shows and write articles about how this plan is a disaster, and we should do X or Y or Z. The problem is X is too expensive, Y is too radical, and Z will never get through congress. We have to work within the constraints of reality - both financial and political.
March 24, 2009 5:12 PM | Reply | Permalink
There is no X that could be more expensive than what this will ultimately cost the country. Y maybe radical but radical is what we need and happens to be what most people want here. Z is the worst kind of cop-out. In a crisis of this magnitude what needs doing is what should be tried (and wait till the pushback from congress over this plan gets ginned up).
Any large program involving huge sums of money and politics is going to have a typhoon of “expert” opinions swirling around it (not just about what will work but about what is what). The financial sector is ostensibly revered (and their “compensation packages” demonstrates a very high reverence) because they understand the great mystery of the “markets” incomprehensible to even scholarly experts outside Wall Street. What could mere Academics possibly understand? This is the very attitude that allowed this cancer to fester and if we don’t take back control even amputations may not suffice to sustain our future health. It’s become a protection racket; only the mobsters can save us from the mobsters.
While the shop talk in boardrooms may involve intricate layers of miniscule details of High Finance and even more layers esoteric jibberish, that doesn’t mean that the general laws governing human nature that we have built our society on are obsolete or unfathomable. When a people in a democracy can no longer comprehend their government or the major functional institutions and how they act generally, then it’s just a matter of time before it’s no longer a democracy. I’m not a constitutional lawyer, but I damn well know that something wasn’t kosher with the last administration regardless of what a real constitutional lawyer, say, Professor Yoo, might say. And the less something is understood, the more it should be argued and alternatives discussed, not less.
Truth is, if you look at the opinions of most economists, scholars and well-informed pundits that are not biased from investment in the system, they are pretty consistently against the course that the administration is taking and for most of the same reasons. Yes, it’s true that no one knows for certain the outcome of this bailout or the last one or the one before- oh wait, we do know. We gave them billions of dollars to unfreeze the credit markets and they sat on it or bought up the unfavored ones who didn’t rate our largesse. Regardless, an uncertain outcome doesn’t mean that the rescue enterprise itself can’t be critically analyzed, starting with exactly who is being rescued, and real correctives put in place.
No one knows the ultimate outcome of the Iraq War, another complex and chaotic system that, nonetheless, was easy enough to comprehend and opine about. Iraq, formerly known as the biggest disaster in foreign policy history around here, can rightfully be declared a smashing success now that the violence has subsided (even tourism is returning!). But that of course depends entirely on a distorted or after-the-fact definition of success (or, indeed, whether it was an unjust enterprise to begin with and no outcome can be counted as a success).
Yes, there are always biases at work and that is the crux of the criticism of Gheitner’s plan. It’s a continuation of the Paulson plan that began with the AIG bailout orchestrated by Geithner, Paulson, Bernanke and the CEO of Goldman-Sachs. Maybe it’s just me but that indicates a slight conflict of interest in this program to put it mildly. What is biased in all this, to my biased mind, is a poster dismissing smart, able critics with perfectly rational arguments opposed to the people-in-charge of the “rescue” with the argument that he (and by implication, we the people) can’t know what is right or wrong to do here because said poster has a personal faith in the people-in-charge. That is the bias I see.
PS excuse the long post, I plead a lack of sleep and beg the court's mercy.
March 24, 2009 7:13 PM | Reply | Permalink
OT: on the press conference, who the hell are all these people asking pertinent questions, more or less with the respect due the office but grovelling and throwing softballs, and where the fuck were they from 2000 - 2008?
March 24, 2009 8:48 PM | Reply | Permalink
And why did this show up as a reply to this comment?
See, there are two more things I dont't know.
March 24, 2009 8:51 PM | Reply | Permalink
I don't even know how to count the infinite number of things I don't know, but I just caught a bit of the PC. The press corps is definitely a different animal but then Obama actually answers questions.
March 24, 2009 9:13 PM | Reply | Permalink
Don, your Dylan quote sure fits the crisis we are in: "The pump don't work cause the vandals stole the handles." I will add another Dylan quote that fits:
"Some time ago a crazy dream came to me
I dreamt I was walkin' into World War Three
I went to the doctor the very next day
To see what kinda words he could say
He said it was a bad dream."
March 24, 2009 9:56 PM | Reply | Permalink
Great rap songs (of a country-blues-folk-rock-poetry type)
"Although the masters make the rules
For the wise men and the fools
I got nothing, Ma, to live up to."
March 24, 2009 10:54 PM | Reply | Permalink
One of the things I think people are afraid to say or understand is that no one knows if this stuff is going to work or not.
Watching the hearings today that Geithner and Bernanke participated in, one of the representatives said he wanted to see a road map of how this plan is going to work.
It suddenly dawned on me that you can't have a road map. We (led by Geithner and Bernanke) are standing at the beginning of a path. Behind us is the financial crisis. Ahead of us, far out in the distance is the place where the crisis is over and our country's financial security is intact. There is a long path connecting the two, but we can't see the good place from where we are standing, we only know that we have to follow this path. No other choice.
The PROBLEM is, this is uncharted territory. We don't know where the pitfalls, minefields and dragons are, how many there are, or even if those are the only dangers. All we can do is take one step at a time, see if anything bad happens, and slowly make our way.
Getting impatient and pissed off are things we can do, but they will not get us any closer to the goal.
March 24, 2009 2:19 PM | Reply | Permalink
I absolutely agree with this comment, Stilli.
Each time I hear someone described as an "expert" these days, I want to shout out, "have a little humiity!". How can anyone be an expert in uncharted territory? And isn't the idea of an economic expert, financial expert, market expert, banking expert...just a little bit tarnished these days?
For me, the real interesting point is the one NC Steve made in point no. 12. What I want to know is what are the assumptions people are using about psychology? These assumptions won't be the safe predictors that economists have relied on in the past, but I'd at least like to know what elements they're relying on to base their advice.
You said it much better than I Stilli, but it seems to me that this long path is one I'd like to build based on some ideas about justice and humanity that look something like the world we want to create, not the one that frightens us. And that means, starting to imagine an economics that assumes that there is a "good" that we as humans want that is about being a compassionate society, just for one principle.
I could go on, but I have a truck load of work to get done tonight, so I'll leave that one hanging out there.
March 24, 2009 8:43 PM | Reply | Permalink
This is a good post, and I recommended it for that reason. I still find Krugman's analysis disturbingly convincing, but this is about as cogent a brief for the other side of the argument as I have read. Here's hoping that there is something to the points you make.
March 24, 2009 2:42 PM | Reply | Permalink
I don't find Krugman convicning and here's why: He doesn't explain things clearly or present the data behind his models. We need to see some numbers. Instead throws around jargon in a "trust me" kind of way. If nationalization is so great, let's see the price tag. Give us a chart of his "plan" vs. Geithners. Instead we get a lot of opinions, which I find almsoty worthless since sorry, we can't just blindly "trust" the experts, and the experts mostly disagree on solutions, even tho they are uninamous that any actual proposal is always terrible.
Excuse the French but give us a fucking chart with fucking numbers, Krugman! (And where in the fuck is TPM on this? Snark and opinons. Let's see a fucking chart with a fucking price tag for every fucking possible option!!!!) If I see another "Stieglitz Calls Plan Piece of Trash" like opinion-quote piece, I'm gonna flip. Citibank *alone* has $700 billion in deposits. How are we going to pay for that? Numbers, folks, numbers.
March 24, 2009 3:09 PM | Reply | Permalink
If nationalization is so great, let's see the price tag.
Let me rephrase, then. I find Krugman's explanation of why the Geithner plan will not be sufficient disturbingly convincing. That is not to say that I have any reason to believe one way or the other about Krugman's assertion that Swedish-style nationalization would be enough.
March 24, 2009 3:24 PM | Reply | Permalink
Here's what I don't get. Krugman says this about the 'real' solution, regarding banks:
First, the 'guarantee of debts' bit. Haven't we been doing that by dumping money into them? Granted we didn't guarantee the full spectrum of their debts, but could we really afford that anyway?
While it's a lot more complex than saying "we'll pay if your debt holders come asking", the Geithner plan seems to be achieving the same fundamental result. We're using taxpayer money and guaranteed loans from the FDIC to buy what are considered 'bad assets'. Presumably the banks do still hold some 'good' assets, which is what would primarily be left behind if the Geithner plan succeeds in enticing buyers. On top of that, this plan helps recapitalize the banks so that they can meet debt obligations on their own if and when their debt holders come calling.
Ok, so maybe this plan won't work for every bank - perhaps a given bank is just too riddled with worthless assets to buy them all out. We're 'stress testing' banks right now, right? Isn't that to see which banks don't have enough assets to cover their debts?
The FDIC is already seizing banks that have clearly failed, and that ARE SMALL ENOUGH to be seized with current resources. If, even after selling off as many of its toxic assets as possible, a bank is still in danger of collapse, THEN you send in the FDIC to clean house. At least the balance sheet looks a bit better without those assets, and we even used some PRIVATE money to help it along.
Has Treasury ever said "it's either this plan OR seize banks, never both"?
And does the FDIC, Treasury, the Fed, anybody even have legal authority to 'seize' a company like Citibank? Seizing even one of these institutions seems to me like a ridiculous, impossible task - how the hell are we going to seize ALL of them?
March 24, 2009 5:34 PM | Reply | Permalink
I also think that there are an awful lot of people who are holding Krugman's ideas up as the gold standard for solutions to this crisis who would be furious if we then actually paid 100% of the bank's debts. After all, much of that that money is owed to evildoers who are responsible for this and must be punished.
Just for example, we nationalized AIG and proceeded to pay its debts at a hundred cents on the dollar and most everyone in the MSM, the blogosphere and in Congress can't stop raging about it 24/7.
March 24, 2009 5:44 PM | Reply | Permalink
I don't really know if the govt can just seize them legally. If a "bank" has more liabilities than assets, and are found to be insolvent, sure the govt can swoop in on a weekend and take them into receivership. Being a more than a regular bank and including insurance products and investments might make the legal situation more complicated.
One of the many many unknowns. And strangely, the media is almost entirely useless in giving us FACTS instead of endless OPINIONS, because, I suspect most of them don't really know either.
March 24, 2009 5:57 PM | Reply | Permalink
Update: Bernanke claims that seizing AIG or other insurance / investment banks is currently not possible and is asking for powers to do this.
March 24, 2009 6:03 PM | Reply | Permalink
St. Paul and Faux Joe Stiglitz have their own agenda and couldn't car less about facts. $4 trillion taxpayer dollars is the number they won't tell you.
March 24, 2009 4:44 PM | Reply | Permalink
On the last point, there are always those who won't accept the data as proving the case they dislike, after any length of time. (See, GOP.)
March 24, 2009 3:28 PM | Reply | Permalink
Steve, thanks for provoking a good discussion here, and for the cogent comments (the ones that are cogent, that is)...! I agree with stillidealistic that there are a lot of people who are afraid to say they don't understand it. I think that is one of the biggest problems with the press on this. News media are trying to convey details about the economic situation and the Geithner plan to people who, like most of us, don't really understand the details. And we do have Nobel laureates disagreeing with each other about what will happen, and part of it is guesswork. I always worry when the Dow Jones surges on a Treasury announcement, because it might because it's a good idea, and it might be because the sharks are anticipating getting fed again, and it is impossible to tell which.
March 24, 2009 4:27 PM | Reply | Permalink
I'm not afraid to say I don't understand it, but I have a hunch that if it can't be explained to the college educated, there's probably something rotten in it somewhere. From the pervasive national security dodges to the financial insecurity dodges we're increasingly told that we're too stupid to understand it or it must be kept secret or opaque to protect us from understanding it. The net result is that we are increasingly denied the capacity to govern ourselves. We are basicly screwed.
March 24, 2009 5:58 PM | Reply | Permalink
Good post Steve.
The uncertainty you talk about here is, in my opinion, one of the unheralded virtues of the Geithner plan.
There's much more "give" in it than either a nationalization plan or a plan where the gov directly buys the bad assets.
The auction process will play out over time with opportunities for adjustment. If the banks aren't willing to sell their assets for a reasonable price, then nothing gets invested and we're no worse off than we were before.
March 24, 2009 4:53 PM | Reply | Permalink
Talk about uncertainty. With all the people filling government jobs who have come from Wall Street I don't have a lot of confidence the American public is getting a fair shake. I really don't see the likelihood of it. Common sense makes me very wary of everything that has happened. Apart from Madoff, the movers and shakers are still out there doing business even though we are in the midst of a catastrophe that has demonstrably cost an awful lot of people an awful lot of money. There is something very wrong with this entire picture. When a Madoff can run a scam that bilks people out of billions without our government even noticing it raises a lot of doubt about those who are running the show. And what were our insurance regulators doing while AIG was underwriting loans and assigning AAA ratings for bundled properties that had no business having that rating?
Keep in mind the people who made this mess are mostly all pedigreed Wall Street finacial types both in government and on Wall Street. So are they crooks who have scammed the nation or just plain stupid? Do we really want to trust an industry that has lost tens of trillions of dollars and cost a lot of people a huge chunk of their savings that can't be recoverd? I am a complete failure when it comes to understanding how persons in high level positions can oversee such a disaster and still be in their jobs. I can't help but feel this is another big lie like so many of the whoppers told to us over the years.
March 24, 2009 6:07 PM | Reply | Permalink
8. Doing something more drastic, as many are insisting we absolutely must do, has a non-zero chance of setting off a second panic that will push us into an actual depression.
Steve, Yes. Prescient point along with 12. Psychology matters.
I've read the Rolling Stone article. Didn't miss a word and learned a great deal from it. But none of that changes reality. The architecture of our society is formed in a certain way. If we're going to overhaul it, we have to keep it from tipping over first. (Not that Geithner's plan ensures that it won't, but it gives those with the most leverage more reason to keep it standing)
Those in favor of receivership now have great points. It would probably be the most fair and just thing to do. But that does not mean it's the most prudent thing to do.
What we really want is the legal system to be a real presence within the financial system. We can still have that! We just won't have it all at once...
March 24, 2009 8:05 PM | Reply | Permalink
NC Steve: My sentiments exactly. Funny how many non-experts I've heard express their firm conviction on the merits (usually negative) of the plan. Sure, we can read economists whose opinion and judgment we have come to rely on and assess their views, but in the end, I suspect most of us really don't have a clue. I know I don't. And it's not the type of thing that's easily broken down according one's general political leanings.
That said, allow me to don my armchair economist hat and offer a few clueless observations. Where the views seem to diverge is on the relative perception of the continued viability of the banks. Krugman seems to think they're basically insolvent and the sooner we realize this the better. Supporters of Geithner's plan seem to think the problem can be solved by getting the bad assets off the books. Presumably, Geithner has more information at this point so I'm giving him a chance (of course, my support means everything to the administration as you must know). Also, the critics seem to me to underestimate both the political cost of nationalizing the banks - imagine the outcry against Obama the socialist - as well as the shock to the financial system of wiping out the shareholders. On the downside, though, the concept of private-public partnerships seems ripe for insider deals that could stoke the same kind of outrage we've seen over AIG. Hopefully, there will be sufficient transparency to avoid that pitfall - or maybe opacity would be preferable given the scads of money some people may be making from this.
March 24, 2009 9:28 PM | Reply | Permalink
My comment seems to have bumped this right off the top spot on the list and into oblivion - a cogent indicator of my exalted position at TPM.
March 24, 2009 9:31 PM | Reply | Permalink
TCFKANCS, your comments brilliantly reflect the hopes, fears and general confusion felt by all of us non-experts who are trying to figure out what the hell to do with our IRA contributions between now and the 15th of next month.
Still, I think there some serious non-ideological reasons for alarm vis-à-vis the Geithner plan. Check out this comment posted in response to Krugman's blog yesterday:
http://community.nytimes.com/article/comments/2009/03/23/opinion/23krugman.html?permid=316#comment316
March 25, 2009 12:53 AM | Reply | Permalink
Great link. It seems like this Winstar ruling would hinder congress in doing anything about the AIG bonuses, doesn't it?
March 25, 2009 11:25 AM | Reply | Permalink