Monday, March 23, 2009

Still following Krugman vs. DeLong

Both have fired back additional missives at each other over the Gaither plan.

It's so much fun watching an intellectual discussion between two rational people. As for my own opinion of the Gaither plan: I simply don't have enough information to discuss this rationally. I would need to know what assets we're talking about, whether they really *do* have any real value (that is, that there are physical assets in meatspace that this paper represents, rather than this paper being derivatives of derivatives of derivatives three times removed from anything real that can be seized towards paying their face value), and how long we're talking about keeping them while waiting for the market to notice that, hey, houses may have lost half their value but they're still real so marking them down to $0 is irrational... the devil is in the details, and I simply don't know enough details on what assets we're talking about to make any judgement at all.

So for the moment I'm going to sit on the sidelines and munch popcorn. That, and hug my big furry loving kitty cat, who is purring happily on my lap (for the moment -- I need to get up and go to work shortly, alas).

-- Badtux the Economics Penguin


  1. Fat it's worth....

    I think Krugman should replace Geithner as Treasury Sec.

  2. I will just state DeLong's Rules regarding Paul Krugman:

    1. Remember that Paul Krugman is right.
    2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.

    Paul says his previous experience in Washington was awful, because politicians simply refuse to listen to economists unless it is politically expedient to do so, and that he feels he's more useful outside the administration saying what needs saying, rather than inside the administration being gagged. Refer to Rule #1 above :-).

    - Badtux the Snarky Penguin

  3. I accept that I over simplify stuff but just what is wrong with the Government taking over the operation of banks and other failed business that we already own controlling interests in and running them for their new owners , US ? By the scope of their failure it's obvious that the private sector has failed miserably at it . If we own it we should run it , right ? Besides isn't this what the Gov. did in the 80's with the " savings and loan " problem we had ? Seems to me this worked well then .
    a confused (as usual) w3ski

  4. The difference is one of scale. I think nationalization is going to happen in the end, but the administration (which has only been in power for two months, remember!) is going to first have to gather up the management team necessary to go in and take things over, plus build the political capital to do so. We shall see what happens. In the meantime, nationalization or no, some assets are undervalued right now (in particular, mortgage-backed securities have effectively been written down to $0 by the market, when they should be written down to 50 cents maybe) and it's a reasonable thing to do to basically take those off of banks' hands at real value (50 cents) rather than market value ($0). That is, assuming that this is what the Gaither plan consists of. Which I by no means have enough information to tell.

    - Badtux the Studying Penguin

  5. With the caveat that I could be wrong, as best as I can tell Geithner's plan is to save the bankers and the shareholders., and that's quite different from rescuing the banks. Giethner's plan calls for the very people who screwed things up so badly to manage the government's program. And the reason they screwed it all up as they did is that they were more interested in adding to their bank accounts than anything else. What's going to be different this time? Geithner's watching? Geithner, the NY Fed chairman who helped put together the AIG bailout? Somehow I don't think I'll be betting the farm on that working out.

    Geithner, like the rest of the big money boys (and girls -- Christina Romer, for example) -- still believe that this is just a blip and all it'll take is a little manipulation to fix it.

    Even if that were true -- which it's not -- this "fix" is just going to continue what we've been doing, except move the crappy loans to the government's toxic asset sheet.

    Geithner and the rest -- including the president -- need to understand that what they're doing isn't going to keep the financial sector from failing because it's already failed.

    I dunno, but when you give a company (AIG, in this case) $170 billion and without that $170 billion the company would be bankrupt, I'd say that's failure.

    So far, all we've gotten out of the same kind of plans that Geithner has now is bigger banks.


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