[WaPo Elitist Update & TV Must-Watch] Let’s Check Timmy’s “Toxic Assets” Plan
By SusanUnPC on March 23, 2009 at 1:54 PM in Current Affairs
PAUL KRUGMAN is on PBS’s Charlie Rose tonight. Check your local PBS listings. Full show list: Nandan Nilekani and Thomas L. Friedman; An update on the economy
with Andrew Ross Sorkin, Joe Nocera and Paul Krugman; and The economy continued
with Thomas F. Steyer and Daniel Alpert on Mar 23, 2009.
Update: Steve “Let’s Put Down the Pitchforks” Pearlstein, the cheerleader business columnist for the Washington Post, was on MSNBC with Andrea Mitchell (1 p.m. ET hour). Ms. Mitchell quoted Paul Krugman’s “hot” column (quoted extensively below the fold) out of context:
The plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. … But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
Mr. Pearlstein, harummmph, declared Paul Krugman [photo right] “FLAT-OUT WRONG!” He shouted, “There is a risk. … Obviously, [Paul Krugman] didn’t understand the plan, or he didn’t read it very carefully.” Well, there you have it! Hank Paulson’s recycled plan is hunky-dory!
Original: Timmy Geithner’s WSJ op-ed, “My Plan for Bad Bank Assets” — uh, shouldn’t that have properly been worded as the “Obama administration’s plan”? (or is the slippery Obama keeping his name out of it?) — has been dissected by dozens of blogs and news organizations, with all the articles captured by the indispensable Memeorandum.com. However, as Memeorandum.com’s list of related articles also makes clear, those troubled deeply by Geithner’s plan include the latest Nobel laureate in Economics, Paul Krugman, who wrote “Financial Policy Despair” for the New York Times:
… Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.
This is more than disappointing. In fact, it fills me with a sense of despair.
Here’s more Paul, and it’s sickening:
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Let’s talk for a moment about the economics of the situation.
Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.
As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
SO! TIMMY! You do NOT have a new plan. You have the same recycled “junk” ideas that failed before.
It gets worse:
The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.
Susan’s Note to Paul: Paul, it’s not obsessive. It’s “sleight of hand” politics, the only kind that Obama knows. Paul, just remember that Obama only cares about campaigning and winning — and NOTHING ELSE. Then it all makes sense, Paul.
Paul, you also need to remember that Mssr. Geithner is an anti-regulation extremist, as I pointed out in my Friday story, towards the end, comparing him to the execrable Alan Greenspan.
See “The Cover-Up By “All The President’s Men” (and Sen. Dodd),” and scroll down to the section comparing Geithner to Greenspan. That article quotes Brooksley Born, the former head of the Commodity Futures Trading Commission, whose portrait graces the cover of my Stanford alumni magazine. Ms. Born — like Eliot Spitzer on Sunday — warns against the no-regulation extremists! Since you can’t see that article, unless you’re alumni, I am going to reprint it in full later tonight.
Paul, you need to keep at the forefront these key facts, and you will comprehend it all:
- Barack Obama — and his two top advisers Rahm Emanuel and David Axelrod — solely care about politics, and they solely care about campaigning, getting donations, and winning.
- Obama, Emanuel and Axelrod do not care about governance or government policy. That’s all annoying “work” that they aren’t interested in doing. Obama will talk about policy but only if there’s a teleprompter in front of him and he can read a speech written by someone else.
- Timmy Geithner is an anti-regulation extremist who oversaw the failures of A.I.G., Merrill Lynch, and much more as head of the New York Fed. Geithner, in concert with Hank Paulson, created the A.I.G. bail-out.
Again, see Eliot Spitzer for the REAL story — i.e., that there was NO OVERSIGHT by the Fed, by the S.E.C., or any other regulatory group. And, by the way, Spitzer points out that we already have ALL the laws we need to catch up with these runaway trains that are set to mow us all down into national bankruptcy and hyperinflation.
PAUL KRUGMAN AGAIN:
But the real problem with this plan is that it won’t work. … READ ALL.
Surprise, surprise. That’s because our real “toxic assets” are Barack Obama, Rahm Emanuel, David Axelrod, and Timmy Geithner.
Really, gang. You must READ ALL of Krugman’s despairing column. I am not permitted, ethically, to quote it all.
So we have a recycled plan — nothing new about it — that won’t work, that is guaranteed not to work because it’s already been proven to fail before.
NOW IT’S YOUR TURN!
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Susan, you hit the nail on the head. In the 60 minutes interview too, 0bama was going around saying how little Timmy has the hardest job and he was so detached in talking about it as if it was Timmy’s problem — but it is his administration, dammit. Didn’t he say something similar on Leno and Leno quipped that 0bama makes it sound like it “his” problem, meaning Geithner’s.
He will vote Yes ….or no…. or present….or maybe…..or……
We’re screwed, Susan. And btw, the bad stuff is no longer referred to as “Toxic Assets.” They’re now “Legacy Assets.”
I mean this bunch isn’t even good at sleight of hand. I think it’s just another indication of this crew’s attitude toward the public: we’re all a bunch of sleeping dummies. They can pull anything and everything over on us without a whimper from American taxpayer. What are the banks putting on the line in this great new scheme? Six bucks for every $94 bucks of public money!!!!
What a deal!
And you’re so-o-o right with this:
“That’s because our real “toxic assets” are Barack Obama, Rahm Emanuel, David Axelrod, and Timmy Geithner.”
Apparently, even the Daily Kos is screaming about the Geithner non-solution, claiming Geithner is quick becoming Obama’s Rumsfield. Continue the analogy and we [the American public] = Iraq.
Shock and Awe!
shock and jaw
signifying nothing!
PEGGY! Are you going to sit with me during Paulie’s show tonight? I’ll save you a seat.
I’m going top try, Susan. I’ve been getting knocked off the blog channel for some reason. I had to re-enter 4 different times for the Susan Estrich interview [I refused to give up because that was a show I really, really wanted to hear. And it was well worth the effort]. Last night I tried to jump into Larry Doyle’s show and was bumped and then got a nasty virus alert.
I’m not sure what’s going on. But I’ll give it a try. So, save me that seat and I’ll try to wiggle through the door!
What I don’t understand is *what* has Geithner been doing for 15 hours a day in Treasury if the plan he’s rolling out today is the Paulson recycled one?
Of course, I bet I could look busy checking statistics and monthly/daily reports too all day.
By coming to Treasury, Geithner’s salary has been halved. My guess is he can’t convince anyone else to come over to Treasury at half their salary.
This is the bottom line in my opinion, the banks simply don’t want to loose a penny or a penny more than what they have lost or have to lose. They are so full of themselves.
Why can’t the American people buy whatever toxic or legacy assets that are there to be purchased? All I want is for the stupid assets to be brought out to the open and offered for public auction to anyone that wants to put their money against them. That’s all I want to see. After that I don’t care.
The way I understand it, the toxic part of the asset isn’t something we’d want to buy. The toxic asset isn’t the house formerly worth $250K that now has a market value of $150K; the toxic asset is the difference between the $250K mortgage that the bank owns and the $150K that the house is now actually worth. If they sold the house for the $150K we might be happy to pay them, they’d be rid of the toxic mortgage but out the $100K difference.
If a bank has 200 such mortgages, they’ve got a serious problem: assets that are toxic to the tune of $20 million. Nobody is going to loan them a nickel, and they have little money to loan out themselves. If the government just says To hell with them, they brought it on themselves, the bank folds, wiping out its innocent share holders. Then the government still has to come forward anyway, at the taxpayers’ expense, to make good on all of the lost account money insured by FICA. They’ve got to, because failure to do so would create a nation-wide run on the banks, killing off sound and unsound banks alike.
My understanding about AIG is that it’s essentially the same sort of problem a small bank might have, except with a different sort of toxic asset and on an enormously vaster scale. AIG has greatly over-extended itself by insuring questionable loans and financial transactions far in excess of its ability to make good on possible defaults. Nevertheless, so long as it isn’t systemically tested, that AIG insurance continues to prop up innumerable transactions that a large portion of the financial industry depends on. If the government kicks the props out from under AIG, the props collapse underneath all of those other financial institutions in a cataclysmic global chain reaction. We’d probably experience some financial equivalent of a nuclear winter while we waited in the darkness for the dust to slowly settle.
Excellent review, Susan. It is a travesty. Yes, it will work. We simply now feed the rich directly with a trough of money. The middle class are out of luck and not allowed to bid on the assets. This in my opinion amounts to ‘Treason.’ It is a betrayal of the citizenry and to our Constitutional way of life.
The people are being betrayed by their government. How long will we take it?
Yes. Inflation will doom the middle class forever more. More of them will join the $250,000 tax bracket — which the “magicians” in the White House doubtless know, given their happiness with the coming inflation that has Larry Johnson aghast. (Larry lived in Argentina during its hyperinflation days, and is a “living witness” we must call upon to tell us that is coming.)
inflation has me aghast as well. Now not only can call the people who got fleeced in the stock market join the soup line, but all those people who were smart/lucky enough to get their money out or to always keep it in bank accounts— now these folks will watch the value of their money disappear.
Everybody’s gonna bite it, but the scum we allow to filtch it from under out noses.
lark: I like that idea. It’s treason. it truly is.
Strange? Obsessive? Sleight of hand? Maybe, but just as likely conspiratorial. If people like Mr Krugman are telling us the Obama/Paulson plan looks nothing like successful past recovery plans, then what does Obama think this plan will do and why does he think so. What are his real objectives?
Execrable = Alan Greenspan = anti-regulatory extremist = Timothy Geithner = execrable. No wonder Mr Krugman is in despair. Maybe we should bring back the tar and feathers.
I can’t unconvince myself of the notion that my tax dollars will be purchasing legacy/toxic assets with an unknown value that will be propped up by my tax dollars in order that the insolvent banks won’t have to fail or take their own gawd-darn losses. My tax dollars will back these assets. My tax dollars recently went to help out troubled foreign banks.
Damn it, it’s time for my dollars to help bail-out my failed financial accounts!
i think Obama is intentionally keeping his name off of it…unless it is widely accepted, and praised, then it will be renamed. but, as its looking, it will remain timmy’s plan.
Lassie, Lassie, where’s Timmy? He’s too big to fail, or to flail?
I see the market is up, of course. This will plan NOT rein in Wall Street’s gamblers anonymous behavior, it will encourage more of it.
Crude analogy, but let’s say they were playing Blackjack, and going further in the hole with each hand. Instead of holding pat with a 17 like reasonable gamblers, they’ve spent the last years saying “HIT ME”, repeatedly, and getting further and further in. If they win, they win $1, and if they lose, they lose $1, and they’ve been losing for some time.
No one has stopped the game and made them take their losses yet. No one has even suggested that they stop this risky CDS game, cash out, and WE”LL HELP THEM cover a portion of the losses if necessary to keep the market stable. Nope, even THAT is not good enough for these greedy fuckers.
What Geithner’s plan does is to tell them “Guess what? The game is still in session, and we’re going to fix it so that if you take another card and win, you get the profit from your $1 bet. If you take another card and lose, you only lose .20, and the taxpayer is covering the rest.”
Sweet deal, huh? So what will a compulsive gambler do in that situation? Amend his ridiculously risky behavior, or step it up a notch so as to cover his losses and make a killing after that? He’s going to be even MORE reckless, and say “hit me” when he’s holding 19! After all, what’s the average downside for him if he does?
Of COURSE Wall Street is thrilled with this news. Why wouldn’t they be?
Not help out foreign banks that I know of (yet!), but giving already super-rich people 6/7 digit bonuses and helping to re-decorate executives’ offices. And they think they *deserve* this money!
Payments have already gone to foreign banks, funneled through AIG. AIG is not a bank, they are an insurance company. The money to them is getting sent elsewhere, in large part.
If anyone had the balls to follow the money, it would become very clear what a big Ponzi money-laundering scheme this all is.
And via Goldman Sachs to the foreign banks. See Mr. Spitzer below.
Forget the bonuses and executive pay. It’s a smoke and mirrors tactic to distract us from the TRILLIONS they’re stealing from us to pay for global financial institutions’ losses. We have become the insurer of last resort. Look at it this way-You loan the bank $200,000 at 0% interest. They “loan” it to someone else at 7% interest. The other party defaults. The bank says, “So sorry, the other guy didn’t pay us back so we can’t repay you. It’s not our fault.” WHO IS LEFT HOLDING THE EMPTY BAG???
Get it?
http://www.faithfreedom.org/2009/03/23/the-evil-of-zero/
This is how much we are screwed, and how much we owe China our own butts…
The Evil of Zero
Scary read.
Paul Krugman is a genius. The only well-known progressive to regularly criticize Obama when necessary.
For some reason, I keep thinking of that term that the soldiers around here, where I live, use for something that is really screwed-up…FUBAR.
MUST WATCH THIS NEWS CLIP
Hey, JP Morgan is using 120 million of the bucks we gave them to buy brand new jets for their executives! And built a fancy new hanger for them! Woohoo!
Party on the taxpayers dime!
http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=12619225
One of the fuckers flying on them is the bastard who waxed all incensed over the “villification of corporate America” that he just “doesn’t understand” on the news a few days ago.
You beat me to the punch on this one. I was just about to post a link here in comments. Can’t wait till John Q gets wind of this news.
Wowsie, wow, wow! I just bet the bots are thrilled with all this hope and change! Hallelujah! They are really getting it now, boy. Wow, a recycled Bush plan. That should work. Yep, those bots, they sure do love
Busher, I mean Obama. Well, ya know, they can continue with that blame Bush theme now. Yep. Too bad we have to share the country with these ones! We need to poll allnon Obama supporters and find out where we all live and if it’s feasible to just take over one half of the country and ship the bots to the other side!Susan: You couldn’t be more right about the sleight of hand politics. It’s exactly what I expected from this bunch. It’s why the D. C. Dems were determined to have Obie instead of Hillary. They had a shady agenda and we’re all going to pay for it.
Present!
Where’s my pie?
No pie-only cake.
The DOW is up almost 500 points today on the news of the Toxic Assets Plan.
Of course it is. I expected it to be.
All that means is that Soros and those who own 0Zero, and America, have bought like crazy and manipulated the market like they did in the reverse, in September, when McCain was ahead in the race. This is all for show, and manipulation IMO. 0Zero is sinking in the public eye but fast, so they had to do something. It’s not going to stay this way and eventually 0Zero will put us in the depression he yaks about.
Wall St. can smell a sweet deal when it needs too. Jets away!
Nazi Germany blamed the Jews for their bad economy and look what happened to the Jewish people. In Obama’s (or is that Ayer’s) book, he(?) penned, “A world in need, run by white man’s greed”. This is his golden opprtunity to correct all the wrongs in the greedy white world that GW Bush turned upside down. Wonder what the Rev Wright’s thoughts are bout along now?
LOL at Steve Pearlstein! Who the hell is he? Krugman, the Nobel Prize winner, I think understands the plan well enough to know it’s a rehash of the Bush/Paulson proposals (and I know Krugman is a lot smarter than Pearlstein, which is why he’s ticked off).
Just because it has Obama’s stamp of approval doesn’t give it any new special powers.
Of course it’s Geithner’s plan! What does Obama know about economics? The guy is just an actor, he reads a script. Right now he’s sort of busy playing a goofy president on TV.
That’s the impression I got from that 60 Minutes interview and, frankly, so did Steve Kroft (asking him if he is “punch drunk”).
I get the impression from his gait that Obama bops around like “it doesn’t get better than this” stuff.
He takes every opportunity to show off his new lifestyle with his personal airforce, his body guards, and his house. Why else would Madam Obama be throwing all these taxpayer paid private concerts?
Geithner’s plan might work “if” the economy turns around, the credit market returns, and house prices start growing again. If that does not happen, the toxic assets will be the least of our problems.
“Surprise, surprise. That’s because our real “toxic assets” are Barack Obama, Rahm Emanuel, David Axelrod, and Timmy Geithner.”
********
Larry Summers is in the WH calling the shots to protect the investment that the bankers made in Obama. There is no way in hell that Hillary would be throwing more money down this rat hole. Big money had to knock her out in the primary, whatever it cost, and they did.
***Obama is now the Toxic Assets in the economy***
This is a modification of Hank Paulson pLan. In Paulson Plan if the bad assets are profitable the tax payers would benefit.
In Geitner Plan only the Investors make a profit and if there is a losss the government is left holding the bad assets.
If we are going to bail out banks, I would have prefered Paulson Plan where both tax payers and investors take a hit or a profit.
Geitner plan is bascially the govbernment subsidizing banks if the assets are worthless.
You have politicians who have taken money from AIG, but are now outraged about the bonuses that were given to the executives,You have citizens outraged at the bailout of the big three automakers but still drive SUV ’s and my still buy one due to the the low prices and low gas prices,You have good citizen’s out raged about Obama’s stimulus spending, but were these the same people who may or may not have voted for him, They tell us save, but many have lost theIr jobs and have had cuts in pay, So then they tell us to spend and buy, but oh! a hour ago they told to save. WHATS RIGHT WHAT’S WRONG ?????
is the interview going to be online?
Another great post about the REALITY we have.
[...] And see my hot-potato piece on Monday, “[WaPo Elitist Update & TV Must-Watch] Let’s Check Timmy’s “Toxic Assets” Plan.” [...]
[...] Here’s Paul Krugman, on camera, on Geithner’s “toxic assets” plan, announced Monday: “This is something they can do without legislation. They found a way that they can in effect put the public on the hook for a TRILLION DOLLARS for this stuff without actually getting any approval.” It can be done through the FDIC and with TARP “residue.” (See our discussion of Krugman’s same-day column.) [...]