Op-Ed Columnist
By PAUL KRUGMAN
Published: March 22, 2009
Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, 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.
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Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.
link Obama: Another Leg in the StoolAs I've said before, there are a number of legs in the stool in the economic recovery. Step one is making sure that we had a stimulus package that was robust enough to fill the huge gap in demand that was created by the recession. Step two was making sure that we had a effective homeowners' plan to try to keep people in their homes and to stabilize the housing market. Because of the work that's already been done, you are starting to see glimmers of hope in the housing market that stabilization may be taking place. Mortgage rates are at a very, very low level, and you're starting to see some activity in the housing market.
We then took a series of steps to improve liquidity in what had been secondary markets that had been completely frozen. And we are now seeing activity in student loans and auto loans. We announced last week a small-business initiative that ensures that we have more activity and you start seeing small businesses being able to get credit again in order to sell products and services and make payroll.
And this morning, Secretary Geithner announced the latest element in this multi-pronged approach, and that is a mechanism that he, in close consultation with the Federal Reserve and the FDIC, has initiated in order to allow banks to take some of their bad assets off their books, sell them into a market, but do so in a way that doesn't just obligate taxpayers to buy at whatever price they're willing to sell these assets; instead, involves a public-private partnership that allows market participants who have every interest in making a profit to accurately price these assets so that the taxpayers share in the upside as well as the downside.
And we believe that this is one more element that is going to be absolutely critical in getting credit flowing again. It's not going to happen overnight. There's still great fragility in the financial systems. But we think that we are moving in the right direction. And we are very confident that, in coordination with the Federal Reserve and the FDIC, other relevant institutions, that we are going to be able to not only start unlocking these credit markets, but we're also going to be in a position to design the regulatory authorities that are necessary to prevent this kind of systemic crisis from happening again.
By BEN FELLER, Associated Press Writer Ben Feller, Associated Press Writer – 1 hr 1 min ago
WASHINGTON – President Barack Obama on Monday voiced strong confidence that his administration's financial rescue plan will get toxic assets off the books of banks in a way that allows taxpayers to "share in the upside as well as the downside."
"The good news is that we have one more critical element in our recovery," Obama said, surrounded by leaders of his economic team. "But we've still got a long way to go."
The plan's goal is to buy up the assets that are weighing on banks' balance sheets and are hampering banks' ability to resume more normal lending to consumers and businesses. The drop in lending has worsened and prolonged the recession. The plan seeks to draw in private investors with inducements like billions of dollars in low-interest loans to finance the purchases.
The government will take on a good share of the risk if the assets fall further in price.
Obama said the plan will be structured in a way that ensures that assets are sold at an accurate price, offering an upside to taxpayers.
"It's not going to happen overnight," Obama said, setting moderate expectations for the sale of the troubled assets. "But we think that we are moving in the right direction."
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