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Stiglitz: Geithner Plan "Badly Flawed"

By Big Tent Democrat, Section Economy
Posted on Tue Mar 24, 2009 at 09:26:07 AM EST
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Via Atrios, Stiglitz rips the Geithner Plan:

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday. "The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

[More....]

U.S. Treasury Secretary Timothy Geithner's plan to wipe up to US$1 trillion in bad debt off banks' balance sheets, unveiled on Monday, offered "perverse incentives", Stiglitz said. "Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer." . . . Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said.

But Krugman Stiglitz always hated Obama so it can't be true.

Speaking for me only

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    Stiglitz: Geithner Plan "Badly Flawed" | 78 comments (78 topical)

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    who works for who? (5.00 / 1) (#13)
    by S on Tue Mar 24, 2009 at 10:04:42 AM EST
    online.wsj.com/article/SB123785266231219605.html

    ...this sounds like metaphorical blackmail or extortion...

    in other words...we, the Obama admin, gives Wall St a sweetheart deal with basically carte blanche and Wall St is assured a winning hand and bonuses...all with our taxpayer money...or wall st walks...huh???

    what happened to big bad Obama, the people's president?

    And now the banks (5.00 / 2) (#14)
    by Militarytracy on Tue Mar 24, 2009 at 10:07:43 AM EST
    are upset and pouting, and they are "slow walking" the stress test information because they think they own us all.  I think all the bull about them not wanting to play with all of us because of our antibonus crusade is BULL.  I think they are too afraid to walk that stress test info right up there because of what will be revealed.

    I agree (none / 0) (#16)
    by befuddledvoter on Tue Mar 24, 2009 at 10:14:22 AM EST
    Fraud, Fraud, Fraud!!

    Parent
    I just read that "mad about the (none / 0) (#18)
    by Militarytracy on Tue Mar 24, 2009 at 10:17:51 AM EST
    antibonus crusade" in the WSJ and I got to the end and something just isn't right.  It reads like a teenager got home at dawn because they ran out of gas :)

    Parent
    My impression is that the banks (none / 0) (#20)
    by Green26 on Tue Mar 24, 2009 at 10:20:11 AM EST
    already know that they are fine under the stress tests--as they surely have done their own calculations. I believe this is part of the reason why several institutions worked to the government preferred converted into a new preferred a month ago.

    Paying back the TARP funds has some issues, because I believe the payback funds are supposed to come from new capital (and new capital is costly to raise when stock valuations are low).

    At least one bank has already paid back the TARP funds, I believe.

    Goldman Sachs has said they would pay theirs back by the end of the year, but they now appear to be trying to do it in the next month or so. It is speculated that Goldman will then be able to attract some top talent from other investment banks--because the stars will be interested in moving to a firm that doesn't have restrictions on bonus/compensation payments.

    Parent

    Goldman should pay it back asap (5.00 / 2) (#22)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:22:41 AM EST
    As should any institution that does not need it.

    If the fear of restrictions on compensation is why they are doing it, then so much better.

    I do not see how slow walking the stress test info gives you the impression they are sure they are fine. Logic dictates the opposite surmise.

    The institutions that are not troubled should stay away from federal government assistance. And we should disincentivize their participation in programs they do not need.

    Parent

    Since when do banks (none / 0) (#24)
    by Militarytracy on Tue Mar 24, 2009 at 10:23:41 AM EST
    slow walk the info that the FED wants?

    Parent
    Stiglitz makes sense unless you want him to be (5.00 / 1) (#37)
    by kempis on Tue Mar 24, 2009 at 10:45:25 AM EST
    wrong.

    Essentially, he's saying that we're tossing a ton of money into an effort to help the banks lend. But the number of borrowers will surely be limited. In short, Stiglitz does not think this is a liquidity problem. It's a problem resulting from businesses and consumers being maxed out on credit in the first place. Fewer can afford debt right now and consumption is probably going to be lower as a result, which means that business will not expand quickly or broadly. If he's right, this is going to be a slow recovery and helping out the financial people who helped get us into this mess won't really solve anything much beyond saving their companies from bankruptcies.

    And then...

    ....the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said

    At some point, we're going to have to pay for all this. Our tax dollars are being poured into various massive bailouts--on top of alarming debt left us by the Bush administration--that may or may not work to grow the economy again. We will have to pay higher taxes, which will also limit consumption, which will limit recovery.

    In other words, it's looking like so many odds are against us that it takes real work (or faith) to be hopeful about the outcome.

    sounds like we are propping up the House of Cards (5.00 / 2) (#53)
    by S on Tue Mar 24, 2009 at 11:34:37 AM EST
    sounds like we are just repeating the cycles that got us where we are and using the same people, for the most part,to keep these cycles going...

    ...and it is all continuing to be built on more debt and more borrowed money...(and we, the taxpayers, are taking all the risk)

    ...sounds like more 'House of Cards' to me that will probably crash and need another fix down the road...

    ...and in the meantime, China, our main lender, is making antzy comments about what we are doing

    ...bottom line, it seems that the O people are too close to the problem, they need people who can make some tough breaks and not be so intimadated or beholden to Wall St

    Parent

    yep...it's pretty depressing. n/t (none / 0) (#78)
    by kempis on Tue Mar 24, 2009 at 04:20:14 PM EST


    Parent
    Ron Paul is tearing it up (5.00 / 1) (#49)
    by Militarytracy on Tue Mar 24, 2009 at 11:21:12 AM EST


    A Gem... (5.00 / 1) (#58)
    by santarita on Tue Mar 24, 2009 at 11:50:21 AM EST
    Bernanke, I think, said during the hearing that internationally there is agreement that there needs to be a level playing field on the question of compensation.  If there is such agreement, it will make it less likely that qualified people will be able to look for jurisdictions which allow them to escape more restrictive laws in their own country.

    One promising trend is towards more international regulation.

    Is this thing almost over? (5.00 / 1) (#63)
    by Militarytracy on Tue Mar 24, 2009 at 12:15:04 PM EST
    Because the only thing I know right now is that we have no substantial plan to address the crisis we are experiencing right now.

    This Obama lover/hater stuff is pointless (5.00 / 1) (#67)
    by BobTinKY on Tue Mar 24, 2009 at 01:18:36 PM EST
    I vociferously supported Obama in the primaries against HRC.  I have zero doubt that had HRC won her Treasury Secretary would be a Rubin protege and proposing the same thing.  But who cares?

    Obama is President and the buck now stops with him.  He is allowing Geithner to pursue a plan flawed for all the reasons Krugman, Stiglitz, Johnson et al point out.  In so doing, he is needlessly burning political capital that promises to derail the rest of his important agenda.

    We who frequent this site are for the most part Democrats, or at least more progressive than not.  We should all be horrified that a Democratic Administration is this in the tank for Wall Street.  What is says about our democracy is as eye opening as it is awful and makes me more appreciative than ever of when George Carlin used to say how "the people who really own/run this country"  would act about this or that.

    Those people are Wall Street.  

    We need to oppose Obama when, as here, he is dead wrong.  And support him when he is right.  We can all choose our 2012 candidates when the time comes.

    Right now, this plan blows and we should work to defeat it knowing who it is we're up against.  And it is not those who either hate or love Obama.  It is Wall Street and its paid government henchmen like Geithner.  I am not ready to throw Obama in with Geithner as I continue to believe, if for no other reason than he is an astute politician,  that he will change course if he sees his support slide away.  

    I am grateful for the critical analysis on talk left, dkos, Krugman blog, baseline scenario and everywhere else.  I also would encourage people to take off April 11 if they can and join in demonstrations that are being coordinated by

    http://anewwayforward.org/demonstrations/

    I don't know who these folks are but I am 100% with them on this topic, and it could not be any more important.  

    Well (5.00 / 2) (#72)
    by Ga6thDem on Tue Mar 24, 2009 at 01:58:15 PM EST
    Obama has gone on record with his support for this plan so it's just as much his plan as Geither's. He picked Geither too. The buck stops with Obama. Not having Obama take responsibility for this is like letting Bush off the hook for Katrina.

    Parent
    Ihave never understood economics but (none / 0) (#3)
    by befuddledvoter on Tue Mar 24, 2009 at 09:39:43 AM EST
    for the first time in my life, I am following the credit crisis and stock market.  Note, I own no stocks.  

    What I do read is that many well respected economists do not like Geithner's plan.  I think that is reflected in today's stock market readings.  

    I have no idea who is right and who is wrong.  I guess we pay no matter whose plan is implemented since the "government" really has no money.  It is our money kind of in trust.  If you view it that way, the "government" has a fiduciary responsibility to us to manage our funds prudently.  

    If they screw up, can we sue??      

    No, but we can vote (none / 0) (#4)
    by TeresaInSnow2 on Tue Mar 24, 2009 at 09:41:43 AM EST
    although who we should vote for I don't know....maybe for that third party I've always wanted.

    Parent
    My question was somewhat in jest (none / 0) (#10)
    by befuddledvoter on Tue Mar 24, 2009 at 09:53:46 AM EST
    Even if we could, the government has no money so any judgement would be paid from our own pockets.  LOL  

    Parent
    Either way (none / 0) (#25)
    by lodi on Tue Mar 24, 2009 at 10:27:36 AM EST
    whether it is Obama's plan or nationalization, the only two alternatives, or combo of, both are going to use taxpayer money.

    That is what is funny here about guys like Stiglitz or any of the others staking their reputations on the Obama plan not working - they fail to mention that either way it is the taxpayers money at risk that is going to save the financial sector, whose savior is going to help refuel the economy. So theirs is a false argument about taxpayer dollars because they fail to mention that the alternative has as many taxpayer dollars at risk and probably more.

    What they also don't mention is that with the Obama plan it is almost 100% certain that a trillion dollars of questionable assets will be removed from the balance sheets of banks. Of course that is a good thing and at the very least a pretty big step forward to solving our collective dilemma.

    Those assets being remove will bring new dollars to the banks which will either contribute to operating capital or be used to shore up the balance sheets with cash or acquisitions of unquestionable assets, or both. Of course that is exactly what the banks need to improve their credit worthiness and have available the additional borrowed funds to start lending and pull up the economy as a result.

    So mission accomplished whatever one thinks of the Obama plan, it is a trillion in the right direction, a trillion that would have to be invested Either Way.

    Will a trillion be enough? Who knows? But it will be a trillion nonetheless and no matter what the naysayers say that is a step in the right direction and it is a very quick step at that. A far faster solution than the nationalization advocates suggest. And one that can be built on if needed.

    Of course their was a third solution and that was the government insuring the assets like Sweden did. Well we are kind of doing that already with non-recourse loans. But instead of insuring (which commits the same tax dollars) the assets up front we are doing it on the back end saying that if the asset values don't pan out then walk away from the loans and the assets and we will take them and forgive the loan. Well that is the same as letting them fail and letting paying the banks for them. Not a dollar more would be spent. That is something that the so called financial geniuses have not figured out yet, or at the very least don't tell the pubic about because of course it would make their arguments against the Obama plan impotent.

    Parent

    Was Sweden dealing with a CDS market? (none / 0) (#26)
    by Militarytracy on Tue Mar 24, 2009 at 10:29:16 AM EST


    Parent
    An unregulated viral CDS market (none / 0) (#29)
    by Militarytracy on Tue Mar 24, 2009 at 10:30:24 AM EST
    that wrote so much coverage that the gross national product of the entire globe can't cover it?

    Parent
    The short answer is (none / 0) (#44)
    by lodi on Tue Mar 24, 2009 at 11:15:42 AM EST
    the entire financial world, all countries, are caught up in the same exact circumstances. There is not even 6 degrees of separation here.

    Parent
    Your answer has nothing to do with (none / 0) (#51)
    by Militarytracy on Tue Mar 24, 2009 at 11:24:54 AM EST
    my question?  You didn't even bother to answer it.  Everybody always throws up the Swedish bank rescue and refuses to acknowledge that we aren't talking about apples to apples here.

    Parent
    I think you misunderstand the nature of the critiq (none / 0) (#27)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:29:44 AM EST
    No one is under any illusion that taxpayer money will not be involved.

    the question is HOW taxpayer money is used.

    Parent

    Yes, and what I get for my money (none / 0) (#30)
    by Militarytracy on Tue Mar 24, 2009 at 10:32:15 AM EST
    attempting to help the banks using the Geithner method does not mean small business loans or college loans.  Those could be hard to come by for years using that method.

    Parent
    Especially (5.00 / 1) (#41)
    by hookfan on Tue Mar 24, 2009 at 11:05:32 AM EST
    since major lenders have ceased lending to small business now, when they need it most. And historically, J Galbraith has pointed out that restoring private banking did not restore the economy during the depression. Direct infusion to maintain jobs, and massively create jobs, thus reducing unemployment did.

    What did not recover, under Roosevelt, was the private banking system. Borrowing and lending--mortgages and home construction--contributed far less to the growth of output in the 1930s and '40s than they had in the 1920s or would come to do after the war. If they had savings at all, people stayed in Treasuries, and despite huge deficits interest rates for federal debt remained near zero. The liquidity trap wasn't overcome until the war ended. ...

    A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.
      From J. Galbraith, "No return to Normal", Washington Monthly, 3/09/09

    Parent

    Which Critique? (none / 0) (#42)
    by lodi on Tue Mar 24, 2009 at 11:10:47 AM EST
    There are many and they all don't echo each other in the same exact way. So my post just addresses the core issues. Not every false innuendo as Green26's does below. Not that those should not be addressed. It is important they are and that those just playing the game of staking their reputations on the plan's failure or trying to establish one on the plans failure are exposed.

    You say HOW the money will be used. That's fair. I say either way the money will be used to clear questionable assets because that is the core problem. It has to be used that way. Whether is is to lend, or buy, or insure -  all which as I pointed out lead to the same solution at the same price more or less. They are just different ways of arriving at the same destination.

    You see people now are yelling about a trillion dollars of tax payer money. And if the government bought those directly from the banks it would not be the same trillion? Of course it would more or less. The difference is Obama is letting the market set the price. And if we insured the assets  it would still be the same trillion more or less.

    So those yelling about a trillion dollars of taxpayer money are not noting that either way, either solution, it would still be a trillion.

    Parent

    If the banks were nationalized (5.00 / 1) (#62)
    by Militarytracy on Tue Mar 24, 2009 at 12:08:34 PM EST
    it would be on Obama's shoulders if he honored all this insane crazy unregulated toxic debt.  I can't blame him for not wanting to touch the stuff and try to find some way for the responsiblity of it all to be placed "on the market".  Bad thing is, all of America who pitched money every single month into their 401k without thought that some shadow system was being allowed to eat them alive.  They were told they couldn't rely on Soc Sec, they were told they must have 401k's and now those have been ripped off too and the toxic CDS market will wipe out even more of their precious savings.  All this toxic CDS stuff isn't FDIC insured.  Do we honor the debts.....they are enormous, it is where we are headed too one way or another.  If the FED ends up waiting until their hand is utterly forced to Nationalized and so be it, honoring any of this toxic debt will be the last thing considered needed at that time I suppose.

    Parent
    Perhaps then (none / 0) (#45)
    by Big Tent Democrat on Tue Mar 24, 2009 at 11:16:45 AM EST
    you should identify which critique you are trying to address.

    Ergo, your question "which critique" is best addressed to yourself.

    Parent

    And Atrios (none / 0) (#5)
    by TeresaInSnow2 on Tue Mar 24, 2009 at 09:42:29 AM EST
    always hated Obama too, so who cares if he points out what other Obama-haters say <snark>

    I am not convinced that all the criticism comes (5.00 / 1) (#8)
    by befuddledvoter on Tue Mar 24, 2009 at 09:50:35 AM EST
    from Obama haters at all.  In fact, I know that is not true.  Rep. Mike Capuana was an ardent Obama supporter ab initio and he is on a tirade about Geithner's plan.  I really doubt that Galbraith is an Obama hater either, and he is likewise critical.  

    I think reasonable people can differ and brilliant people with infinite experience can validly take different approaches.  However, this problem seems different. It is not a theory or principle in vacuo that is being considered in which you can engage in mental masturbation with no real fallout.

    This is real and serious.  I know I don't need to say that but I do think sometimes theoreticians become so engrossed in theory and ideas they forget that real people are involved; real people loose jobs; real people loose houses; real people loose medical coverage etc.

    Parent

    Oops, you didn't get the joke. (5.00 / 2) (#33)
    by TeresaInSnow2 on Tue Mar 24, 2009 at 10:36:49 AM EST
    People criticized Krugman's objections because Krugman was an early Hillary supporter.  Those people said that Krugman always hated Obama, so of course he would criticize his plans.

    Now, if you read carefully BTD's posts, he frequently snarkily refers to that criticism (see the last line of BTD's post).

    So I was snarkily referencing those (Atrios) who reference those who allegedly only criticize the plan because they hate the planner.

    Parent

    Correct (5.00 / 2) (#38)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:45:41 AM EST
    I intend to use that formulation for all criticsm of the plan - from Simon Johnson, Dean Baker, Roubini et al.

    The Krugman hates Obama has been the standard mindless response to criticisms of the Geithner Plan. It is simply absurd.

    Parent

    Why did Obama pick Geithner? (none / 0) (#7)
    by Saul on Tue Mar 24, 2009 at 09:49:31 AM EST


    Because (5.00 / 2) (#9)
    by jbindc on Tue Mar 24, 2009 at 09:52:11 AM EST
    He was the only person on the planet who would know how to get us out of this crisis (cough).

    Parent
    Because he looks like Elliott Ness? (5.00 / 2) (#11)
    by Cream City on Tue Mar 24, 2009 at 09:55:59 AM EST
    As was pointed out here yesterday.  Spot on.

    Parent
    Simple (5.00 / 2) (#34)
    by lodi on Tue Mar 24, 2009 at 10:39:09 AM EST
    Because Obama wanted a Pubic-Private solution. And that is exactly what he is getting.

    People keep trying to call this the Geithner Plan. That's false. It is the Obama Plan and always has been.

    Agree with it or not it is obviously what we have. And it is best to wish that it works. And it will to some extent. As I said upthread at the very least it will remove a trillion dollars of questionable assets from the banks which will strengthen them. And of course making the banks stronger than they currently are is the objective, and has been the objective of countries around the world. There is no argument that the banks need to be strengthened in order for the economy to improve.

    Parent

    This is true (5.00 / 0) (#36)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:44:14 AM EST
    At this point, I use the Geithner Plan as a shorthand.

    I certainly do not intend to absolve Obama when doing so.

    Parent

    I believe (5.00 / 1) (#61)
    by hookfan on Tue Mar 24, 2009 at 12:01:32 PM EST
    you need an "l" in your first sentence to cover the Freudian slip. . . Unless you really intended implying something less savory. . .

    Parent
    When (5.00 / 1) (#70)
    by Ga6thDem on Tue Mar 24, 2009 at 01:52:07 PM EST
    all the economists who have been right about this in the past are saying this won't work we're just supposed to sit around and "hope" that it works because you don't think there's anything else that can be done? That's pretty much the crux of your statement. Obama is not a dictator and his plan can be killed in congress and replaced with a better one.

    Parent
    So (none / 0) (#77)
    by lodi on Tue Mar 24, 2009 at 04:09:31 PM EST
    "all the economists who have been right about this in the past"?

    What have the economists been right about in the past about this program when the past only goes back to yesterday when the plan was intorduced, and has not even been implemented?

    Parent

    I'm talking (none / 0) (#79)
    by Ga6thDem on Tue Mar 24, 2009 at 07:29:18 PM EST
    about people like Krugman who called what was happening years ago and are now saying that this won't work. He has a track record of being right. There are some others like Roubini who called it too. Those are the economists that I'm referring to.

    This plan is just another version of the Paulson plan that was passed in '08 and didn't work. If it didn't work then what's to say it's going to work now. The problem is structural and there is no bailout that's going to solve a structural problem. It's kind of like the foundation in your house cracking and you putting a new roof on it.

    Parent

    Thanks for the clarification (none / 0) (#80)
    by lodi on Wed Mar 25, 2009 at 11:24:47 AM EST
    Sure, many people said derivatives were a time bomb. George Soros wrote several books that I read that addressed the subject. Many analysts saw the same problem. But just because people can see a problem does not mean they have the solution. Lots of people recognize problems and are hard pressed to find solutions everyday. So trying to equate recognizing a problem with being qualified to finding a solution is just doesn't wash.

    When all the economists who have been right about this in the past are saying this won't work we're just supposed to sit around and "hope" that it works because you don't think there's anything else that can be done? That's pretty much the crux of your statement. Obama is not a dictator and his plan can be killed in congress and replaced with a better one.

    The economists that you speak of were right about the derivatives as I said above. Do you have a choice to hope it works? Sure you do. You can hope it does which would be the right thing for the country. Or you can do as you are doing now and hope and believe it won't which is not the right thing for the country. It's that simple.

    Can congress kill this as you say? NO! And that you don't know that is disturbing. It means that you don't have all the facts and that you are hoping for some kind of magic intervention that does not exist. You are obviously dealing from the premise that congress can kill the current Obama plan which they can't. In doing so it is clouding your judgment. Try coming to the realization that there is nothing that congress can do about the current plan and then see where you come down on the issue. You can then chose between hoping it works for the countries sake, or you can be a Krugman  who is forced to stick with his position because his ego says to, instead of supporting the plan and suggesting on how it can be built on.

    We have what we have. At the very least it is going to remove 2 trillion dollars of questionable assets from the books of the banks and may very well create a market for more assets to be removed. Either way you look at it that is a good thing and it is a start.

    This plan is just another version of the Paulson plan that was passed in '08 and didn't work.

    No it is not. It has some important components that the Paulson plan did not have. I know Krugman says it the same is but he is wrong. He is ignoring the add-ons because to do so serves his argument. Of course when your argument requires that you leave out facts then you don't have much of an argument.

    You need to examine the two plans and then come back and try to tell me that they are exactly the same. You won't be able to do that.

    Parent

    Sorry (none / 0) (#81)
    by Ga6thDem on Wed Mar 25, 2009 at 01:26:13 PM EST
    I'm not into blind hope. I'm not going to sit around and sing kumbaya about a plan that robs the taxpayers blind and then hopes it works. You're pretty much saying that all there is.

    Well, if what you say is true and it can't be changed then the country, the party and Obama is sunk. The odds of this working are so slim that you should plan on people starting to advocate that Obama should step down a President.

    The add ons DO NOT enhance the product. You are grasping at straws with that kind of argument. Both of the plans are bailouts. The fact that a few of the details are changed really does all of sudden make it worthy.

    Parent

    Is this way for Obama to blame EVERYONE, (none / 0) (#74)
    by BrassTacks on Tue Mar 24, 2009 at 03:15:15 PM EST
    When it doesn't work, unemployment grows, the market tanks again, housing still off?  It won't be HIS fault it will be the fault of the public AND the private sector.  

    Obama strikes me as someone who does not handle criticism well.  He can't laugh at himself, which is why he avoided the Gridiron Dinner this weekend.  The first President to skip it in 40 years.  Obama is not someone who will tolerate being made fun of, like the other Presidents have done.  Nor will he take the blame for what happens in his administration.  He's setting things up so that he has lots of others to blame when his plans don't work.

    Parent

    I really don't expect one person to solve this (none / 0) (#12)
    by befuddledvoter on Tue Mar 24, 2009 at 09:57:23 AM EST
    mess.  After all, it was years in the brewing and thousands of entities had their hand in it.  

    Parent
    Because (none / 0) (#73)
    by vicndabx on Tue Mar 24, 2009 at 02:04:25 PM EST
    Eliot Spitzer was run out of town w/an empty box of condoms.

    Parent
    To be clear, Stiglitz said the following: (none / 0) (#15)
    by Green26 on Tue Mar 24, 2009 at 10:13:21 AM EST
    The plan is "unlikely" to work "as long as the economy" is weak.

    He seems to admit that the plan may clear the toxic assets off the balance sheets, but that the banks may still not lend more.

    [I say so what to that one, as the banks will be further stabilized, and people will have more confidence in the banks.]

    The plan would expose the taxpayers to too much risk.

    "I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

    [Huh, it won't work because taxpayers will be angry? I don't get that.]

    He said the taxpayer takes the downside risk and the upside goes to the private investers.

    [This is just plain wrong. The US would share in the upside. It looks to me that the US would share equally in the upside.]

    I wonder if Stiglitz is getting too caught up in the pre Rugby 7's partying in Hong Kong, as some of his thinking doesn't seem to be clear. Explanation: the Credit Suisse Asian Investment Conference is held each year around the Hong Kong 7's Rugby Tourney--which is the best 7's tourney in the world and sometimes called the world's premier drinking event. Huge fun. I've attended the tourney and parts of the conference multiple times. Wish I was there today.

     

    Oh please (5.00 / 1) (#17)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:15:29 AM EST
    Disagree with Stiglitz. But do not distort what he said.

    "The Geithner plan is very badly flawed."

    Parent

    Then list the reasons he said the plan (none / 0) (#21)
    by Green26 on Tue Mar 24, 2009 at 10:21:58 AM EST
    is flawed, other than what I already listed.

    Parent
    A different point (none / 0) (#23)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:23:22 AM EST
    I see that you did address Stiglitz on the substance of his critique.

    I was objecting to your opening sentence.

    Parent

    My first sentence came from (none / 0) (#28)
    by Green26 on Tue Mar 24, 2009 at 10:29:50 AM EST
    the first sentence of the article (note the last half of the sentence):

    "The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday."

    Parent

    But you ignored (none / 0) (#35)
    by Big Tent Democrat on Tue Mar 24, 2009 at 10:43:22 AM EST
    the sentence I cite.

    Parent
    Why repeat the title of the thread (none / 0) (#64)
    by Green26 on Tue Mar 24, 2009 at 12:17:01 PM EST
    and the first sentence in your thread?

    That seemed seemed obvious and unnecessary to me.

    Also, there was no explanation of what he meant by flawed, other than what I summarized.

    Parent

    When the economy is strong, (none / 0) (#75)
    by BrassTacks on Tue Mar 24, 2009 at 03:17:05 PM EST
    We don't need any plan to work!  

    Parent
    Nationalization would stablize the banks too (5.00 / 1) (#19)
    by Militarytracy on Tue Mar 24, 2009 at 10:19:37 AM EST
    AND......they would lend again THEN.....and not twenty years from now.

    Parent
    I think this (5.00 / 1) (#31)
    by Capt Howdy on Tue Mar 24, 2009 at 10:32:34 AM EST
    is what people like Cantor and other republicans want.
    then they can scream socialism.

    Parent
    Well (5.00 / 1) (#71)
    by Ga6thDem on Tue Mar 24, 2009 at 01:55:17 PM EST
    I think that's the crux of the situation that Obama's in. He so afraid of being called a "socialist" that he'll put out a crappy plan that's bound to fail instead. Who cares if the GOP yells "socialism" if the stinkin' plan works. They called Bill Clinton the same thing and yet he was successful.

    This is one of the main problems I have always had with Obama.

    Parent

    You're right about that (none / 0) (#32)
    by Militarytracy on Tue Mar 24, 2009 at 10:35:36 AM EST
    Cuz I live around some of those people.  They have no solution themselves of course and they ushered us into this horror.  The only thing that will save their political careers now is rhetoric.  I suppose we'll have to ride this pony until it falls down dead in the desert before some folks become willing to become "socialists".

    Parent
    They can scream (none / 0) (#40)
    by NYShooter on Tue Mar 24, 2009 at 11:01:44 AM EST
    all they want; They're the ones that got us into this mess, and I think the American people know that.

    I also don't think the word, "socialism" has the same fear factor meaning today as it did thirty years ago. Having seen the damage an unfettered "Market" can do to average, working class people, the friendly bosom of The Government doesn't sound so bad.

    At the time Reagan gave us "the Government IS the problem," we had jobs, pensions, and a future, what has "The Market" given us?

    Parent

    I doubt it's the Market (5.00 / 1) (#46)
    by hookfan on Tue Mar 24, 2009 at 11:17:44 AM EST
    that's given us this. I rather believe it's unfettered Marketeers, with unfettered government support to minimize their risk, while the rest of us live with the results.

    Parent
    Are you channeling Ron Paul this very second? (none / 0) (#50)
    by Militarytracy on Tue Mar 24, 2009 at 11:22:13 AM EST


    Parent
    Hey! (5.00 / 2) (#54)
    by hookfan on Tue Mar 24, 2009 at 11:37:45 AM EST
    My name is not Luna Lovegood! Although it c-o-u-l-d b-e. . . I think I may be channeling Lambert. He's my hero-- we working class stiffs have to stick together!

    Parent
    Nationalization would NOT stabilize things either. (5.00 / 1) (#39)
    by steviez314 on Tue Mar 24, 2009 at 10:46:19 AM EST
    Let's say the gov't nationalizes Citigroup.  Even if they then say, "we're done, we're not going to nationalize Chase", would they be believed?  Would Chase or Wells Fargo keep making loans?  Would investors in those banks keep investing?

    Nationalization is the Rubicon..once crossed there is no turning back.  I predict all bank activity would freeze up for quite a while.

    I guess if you just nationalized EVERY bankin America....but that seems way wrong.

    Parent

    I disagree (5.00 / 1) (#43)
    by Big Tent Democrat on Tue Mar 24, 2009 at 11:15:25 AM EST
    Nationalization of insolvent banks would in essence make clear that non-nationalized banks are not insolvent and this will not be nationalized.

    the situation would be exactly the reverse of what you describe imo.

    Parent

    Yup (none / 0) (#47)
    by Militarytracy on Tue Mar 24, 2009 at 11:17:47 AM EST


    Parent
    That's only if (none / 0) (#52)
    by TeresaInSnow2 on Tue Mar 24, 2009 at 11:34:23 AM EST
    you trust the government to judge insolvency....

    I agree with you that the banks should be nationalized, but I don't think nationalization would ensure any public confidence in the banks that aren't nationalized.  We would just be waiting for them to fail too....

    Parent

    I suspect (none / 0) (#55)
    by TeresaInSnow2 on Tue Mar 24, 2009 at 11:39:06 AM EST
    we'd have more confidence in the NATIONALIZED banks though.

    Parent
    Unless the Republicans... (5.00 / 1) (#56)
    by santarita on Tue Mar 24, 2009 at 11:44:44 AM EST
    are in control of the government.

    Parent
    Especially if (none / 0) (#57)
    by hookfan on Tue Mar 24, 2009 at 11:48:29 AM EST
    they were broken up, returned smaller, with new management, and limited to, ya know, actual banking. . .

    Parent
    key word being insolvent (none / 0) (#59)
    by lodi on Tue Mar 24, 2009 at 11:53:17 AM EST
    The government has already nationalized smaller banks that they have deemed insolvent.

    So according to the government at this point non-nationalized banks are not insolvent and thus will not be nationalized.

    Parent

    Where did they say that? (none / 0) (#60)
    by Militarytracy on Tue Mar 24, 2009 at 11:55:18 AM EST
    I haven't heard that or read that any place.  I have heard and read about this theme of too big to fail though.  Which is not the same thing as being solvent.

    Parent
    FDIC head: big banks "well-capitalized" (none / 0) (#65)
    by Green26 on Tue Mar 24, 2009 at 12:26:45 PM EST
    and "fine", as of Feb. 24, 2009.
    "As of this date ... all these large banks exceed regulatory standards for being well-capitalized, so for right now they're fine," FDIC chief Sheila Bair said on CBS television's "Early Show."
    This included Citi and BofA.

    "Well-capitalized" is a term of art in the bank regulatory parlance.

    Parent

    Oh (5.00 / 1) (#66)
    by Militarytracy on Tue Mar 24, 2009 at 12:38:35 PM EST
    We take no assurance from this "well capitalized" talk. Why not? Well, look at the history of well capitalized.

    "To be clear, we do not expect to use proceeds of this equity offering to further decrease leverage, but rather to take advantage of future market opportunities, which are abundant. And over all, we stand extremely well capitalized to take advantage of these new opportunities. From a risk management perspective, we continued to operate in our disciplined manner we're known for," said Erin Callan, the CEO of Lehman Brothers, in June of 2008.
    "At all times, the firm had a capital cushion well above what is required to meet supervisory standards," SEC chair Chris Cox wrote of Bear Stears...after the firm had collapsed.

    "Both [Fannie and Freddie are adequately capitalized, which is hour highest criteria," said James Lockhart, director of the regulator of the GSE's, on July 8, 2008.
    But don't worry. After so many "well capitalized" financial companies collapsing, what are the odds it could happen again? Aren't Black Swans rare things? Should we be due for at least one failing bank to survive?




    Parent
    Nobody seems (5.00 / 2) (#68)
    by hookfan on Tue Mar 24, 2009 at 01:20:57 PM EST
    to want to talk about how well capitalized the system is when compared to its long term risks involving liabilities from cds and cdos do they. Yesterday Jerome in Paris posted on Dkos estimating their liabilities in tens of trillions. How capitalized is it for that? And why is noone seriously considering cancelling those obligations?
    Finally, there is no guarantee that even more obligations will show up in the future as jobs continue to be lost. How well capitalized is the system for that?
       I fear that the current attempt is to provide parachutes for a soft landing to those who through their idiocy got us here, while the rest of us are left strapped under the bus while it crashes down into the canyon.

    Parent
    Exactly, to a T, and in a nutshell (5.00 / 1) (#69)
    by Militarytracy on Tue Mar 24, 2009 at 01:40:32 PM EST
    It is very hard for people to grasp that it's done.  We have to start all over somehow.  It's too bankrupted and corrupted and overleveraged to hell and back to save.  I'm in a funk today.  Not so much that I didn't know how it was, but the hearing was a reminder of the horrid truths I kept in my memory banks that have now become a list.  I think the thing that really did it was remembering that a lot of the overleveraged crap at AIG had been given a AAA rating, Moody and Poor means nothing anymore.......well capitalized - under what circumstances in what situations given what credit default swaps are being called in?

    Parent
    Don't worry, this is just a first step (none / 0) (#76)
    by BrassTacks on Tue Mar 24, 2009 at 03:19:43 PM EST
    In nationalizing all the banks and all the financial institutions.  This plan won't work, and that failure will give Obama the final reason that he needs to nationalize everything.  

    Parent
    We crossed it before and came back (none / 0) (#48)
    by Militarytracy on Tue Mar 24, 2009 at 11:19:36 AM EST
    fine, well enough to do the whole damn thing all over again as soon as everyone with the memory of what was done before died off.

    Parent
    Stiglitz: Geithner Plan "Badly Flawed" | 78 comments (78 topical)

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