Krugman is ignoring parts of the Geithner plan

[BootinUp]

I read Krugman religiously, he is quite simply, my number one source for economic analysis. But he has yet to acknowledge that the Obama admin, Geithner etc. are planning for the inevitability of nationalization of one or more of the major bank holding companies. My humble opinion is that such action is being delayed precisely to prevent runs on the healthier banks of the group and to prevent negative feedback from harming the recovery and to make sure we can do what needs to be done with regard to the holding companies legal positions.

There are many signs forming that the recovery will happen by 2010, and we don't need questions about all the major banks to work against it and cause another drop in confidence about the whole system. So the calculation that Geithner, Summers and others in the Admin have made, is that it is better to get the legislation ready that will be needed to do it right and to keep people guessing a little longer about which of the majors will need to be closed down and broken up.

There has been national news coverage of Geithner pursuing additional authority to deal with the holding companies in the past week, power that exceeds that of the FDIC's current authority. When will Krugman acknowledge that it appears they are preparing to deal with the worst of the big banks.

[FrenchieCat]

1. Maybe it is best if Krugman he doesn't deal with this part of the issue.....

until AFTER the authority is in the bag. I'd hate for him to be the one that pulled out the red flag and acknowledged the fact that Obama may be nationalizing entities bound for failure.

Let him look the other way till we are finished.

I for one have no problem with Krugman disagreeing with the President,
as long as he doesn't make it so personal.....
and states outloud that our President's policy on this is a failure......
since that isn't a sure thing.
that message we could do without.

[Cha]

9. krugman is was too personal and

it started during the primaries. He just sounds bitter.

[AZBlue]

15. If only I could recommend a post within a thread!

[Political Tiger]

2. The problem with Krugman is that he has gone

from economist to political pundit. We've got enough political pundits as it is. Krugman should have stuck with being an economist instead of deciding to become yet another political pundit.

[redqueen]

3. What... so you're telling us that we want to avoid panic?

That investors panicking would be a bad thing?

Well that sure is a surprise. I wonder why that is.

[vaberella]

14. That's not what the OP said. When the OP said avoiding bank runs...

Only citizens who have accounts within banks can cause that. Not really investors. If enough citizens run to the bank and withdraw funding the bank fails. This is half of the problem that brought down IndyMac.

[redqueen]

29. Sorry, yes...

my mistake.

[depakid]

4. He's not ignoring it- he just questions whether the administration will have the political capital

to deal with it once the time comes- and is also worried that the longer the adminstration waits- the worse the hemorrhaging of jobs.

That's what I've read at least. Others disagree of course- and believe that it can still be accomplished many months down the line.

[asphalt.jungle]

7. does he have nobel prize in politics as well?

we can't question him on economics because "oh it's krugman and he is a nobel prize winner." ok i can accept that, but why should anyone care what he says about "political realities", is he eminently qualified in that area as well?

[depakid]

10. His track record on politics has been pretty damn accurate

and so I tend not to dimiss what he has to say in that regard- particularly when it lines up with historical tendencies.

Call me old school, I guess.

[asphalt.jungle]

11. yeah he was on the ball with all his political prognostications

about the man who is currently president. he's great at reading the political tea leaves.

[depakid]

12. Not certain what prognostications you're referring to in that regard

I'm referring to dozens of columns and essays written over the years- and especially some of the more prescient ones featured in the Great Unravelling.

[asphalt.jungle]

13. hmmmm

like saying during the primaries that Obama wouldn't be able to win the general election. comments like that are more in line with this one about political capital. i don't think he's proven to be this great reader of the tea leaves where I should be concerned because he feels the president's political capital will be gone soon.

[depakid]

17. I don't recall ever seeing that

Though I have seen more than a few false attributions of his "dislike" for Obama- as opposed to criticisms of his policies (or in one column, certain sorts of supporters).

As far as I can rmember, there was only one that got the policy call "wrong" -that was on broad regulatory proposals, the follow-through on which remains to be seen.

[BootinUp]

8. Yes, I picked that up, but he hasn't commented on the effort

underway regarding giving Geithner authority to shutting down bank holding companies, which is different than just taking a bank into receivorship.

[EmilyAnne]

22. But IF its a part of the plan, then what has been proposed so far will make the argument for this

more powerful.
Krugman is counting on a depletion of political capital, but he has almost always been wrong about Obama's abilities.

[xchrom]

5. ...

r-i-g-h-t -- krugman is ignoring some part of all this.

well -- you provide a laugh at least.

[BootinUp]

6. I almost never post things that aren't a little controversial

around here. He is ignoring it by not discussing it or mentioning it even in his blogs or articles.

[girl gone mad]

19. He mentioned it at least twice in the last week.

Geithner won't be granted special powers to sieze the assets of institutions. That plan was just way off the mark, imo.

[Kurt_and_Hunter]

16. Must Krugman now be faulted for ignoring an imaginary reality?

I'm sure the professor can play "guess along with Geithner" as well or better than most of us, but his objective is to influence policy, not shill for the administration by making up the most flattering possible interpretation of events he can imagine.

Yes, the administration is prudently doing some contingency planning. We all know it.

But that is a far cry from a policy.

And if the administration might do something then his proper role is to say what the administration should do rather than assuming everything is cool.

[EmilyAnne]

23. But most of economics is sort of imaginary. He is counting on a certain value to "toxic assets,"

for example. He claims, over and over again, that he thinks the assets are overvalued and that no one knows their true value.
Geithner has a different opinion on this.

Neither one really KNOWS until they take a look at the books, which is what is going on right now with the regulator and their "stress tests." The portfolios will then be shared with the FDIC.
Krugman could very well be wrong about some of the assets, but even if he isn't wrong, the FDIC will be more informed than he is when they begin the private-public bidding.
Not all assets will have value, not all assets will be bid on, so many will stay on the bank books until another plan is enacted to deal with them.

Many of these assets, however, are not owned by banks. I have not seen Krugman explain how the government is to handle these, much less even acknowledge their existence.

[grillo7]

18. Plans are different from actions...

It's true that the treasury may have nationalization on the agenda if things don't work out, and Krugman acknowledges this. The problem, however, is that we aren't skipping ahead and doing just that. Why waste a considerable amount of money and political capital on this toxic asset venture that many leading economists not connected to the administration think will fail? The public's stomach will not hold if we continue to pour money down a drain with no results. Moreover, the "wait-and-see" approach hasn't worked well in the past...look what happened to Lehman brothers.

[BlooInBloo]

20. That's been speculated by several folks....

Here are two of them:

http://www.salon.com/tech/htww/2009/03/23/let_geithner_...
http://www.motherjones.com/kevin-drum/2009/03/eating-it

[truedelphi]

21. K & R for the later read. n/t

[La Lioness Priyanka]

24. when he wrote that column, it was before the geithner plan was out

i think he stated it that way too: if...then...

it sounds from geithner recent comments that they are planning to partly nationalize some institutions, though i could be wrong.

[vaberella]

25. You're correct. Geithner is looking to nationalize...

Here is the link to some more add-ins to the G-man's plan: http://www.democraticunderground.com/discuss/duboard.ph...

[La Lioness Priyanka]

27. yes, and for the OUTRAGE that everyone poured on krugman, i read the column

and he very clearly put things in if...then statements and also started by saying the details of the plans are not out.

if geithner is planning on nationalizing some banks, it validates krugmans premise.

[vaberella]

31. Apparently Krugman also said he didn't read the plan before he spoke.

You see, no one has read the plan before they criticized the words. The plan is large and it has a lot of ins and outs, basically extremely compligated...but I think it meets all the things Krugman asked for and more. Unfortunately people on this site don't read the fine print and also don't know half of it until it comes out that they only have a certain amount of information they're speculating and running on.

[La Lioness Priyanka]

32. he said the details of the package were leaked and if they were true etc...

he said it right in the beginning and very clearly

[vaberella]

34. Details leaked, but he didn't know the whole truth before he wrote an Op-Ed.

Hence a point. People went nuts taking his remarks as the whole truth and nothing but the truth and lambasting President Obama and Geithner----when no one had a clue. Well anything in stone and still don't.

Krugman said nationalize and President O and G-man have both asked for the power to do that...but Krugman said G-man's initiative was wrong. While it seems it was always G-man's plan to extend or use that power.

[La Lioness Priyanka]

35. people shouldnt blame their inability to comprehend on krugman. nt

[EmilyAnne]

26. Nouriel Roubini's take on the plan alludes to your assertion.

"Mr. Roubini believes that the Treasury's plan does not preclude nationalization at all. Rather, he said, it will help to clear the way to full government takeover some troubled institutions."

Krugman says the plan will fail, thus depleting the political capital Obama will need to nationalize the banks.
But, what if, as Roubini says, the plan will clear the way to nationalization? Having cleared out and properly assessed the some of the assets, the plan will be a success, thus reserving Obama's political capital.

[cooolandrew]

28. Krugman is allowing his personal judgment detract from his professional opinion. >

He has been right on overal economics in recent years but there is more element of sabotage to his critique these days.

[leftofthedial]

30. So Obama and Tim "Wall Street" Geithner are diabolically clever liars

with a scheme worthy of Machiavelli or Stalin and that makes Krugman a putz?

I see.

[Dawgs]

33. Krugman keeps assuming that the current economic plan is the last.

Obama has consistently said that they will continue to work on the economy until it's fixed.

Krugman is wrong; as usual.

[CAcyclist]

36. The recovery won't happen by 2010, because almost everyone is ignoring

the next wave of defaults - the vast majority of alt-a's and option-arm mortgages reset in 2010 and 2011. We will have a brief respite in 2009, but unless all of these people can refinance into better terms before this, a second massive foreclosure wave will wash over the country.

Subprimes crested in 2007 and 2008 - the next wave is just as big as the last. 60 minutes did a story on this and showed a graph of the two peaks.