Obama Is Wrong: The Loyal Opposition of Paul Krugman, Newsweek March 28, 2009

[Better Believe It]

Obama’s Nobel Headache
Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right.
By Evan Thomas | NEWSWEEK
March 28, 2009

Traditionally, punditry in Washington has been a cozy business. To get the inside scoop, big-time columnists sometimes befriend top policymakers and offer informal advice over lunch or drinks. Naturally, lines can blur. The most noted pundit of mid-20th-century Washington, Walter Lippmann, was known to help a president write a speech—and then to write a newspaper column praising the speech.

Paul Krugman has all the credentials of a ranking member of the East Coast liberal establishment: a column in The New York Times, a professorship at Princeton, a Nobel Prize in economics. He is the type you might expect to find holding forth at a Georgetown cocktail party or chumming around in the White House Mess of a Democratic administration. But in his published opinions, and perhaps in his very being, he is anti-establishment. Though he was a scourge of the Bush administration, he has been critical, if not hostile, to the Obama White House.

In his twice-a-week column and his blog, Conscience of a Liberal, he criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that 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."

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?

Please read the complete article at:

http://www.newsweek.com/id/191393

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The Editor’s Desk
By Jon Meacham | NEWSWEEK
Published March 28, 2009

All criticism is not created equal, though, and—not to be too grand about it—democracy depends on the willingness of those in power to consider dissenting views. Critics, too, bear much responsibility if they wish to be taken seriously. They must recognize that life in the arena differs from life, say, in academia or in newsrooms. The complexities and contradictions of governing can be overwhelming, and offering opinions is a great deal easier than winning votes, building coalitions and substantively shaping the life of the nation.

Every once in a while, though, a critic emerges who is more than a chatterer—a critic with credibility whose views seem more than a little plausible and who manages to rankle those in power in more than passing ways. As the debate over the rescue of the financial system—the crucial step toward stabilizing the economy and returning the country to prosperity—unfolds, the man on our cover this week, Paul Krugman of The New York Times, has emerged as the kind of critic who, as Evan Thomas writes, appears disturbingly close to the mark when he expresses his "despair" over the administration's bailout plan.

Is Krugman right? Is the Obama administration too beholden to Wall Street and to the status quo, trying to save a system that is beyond salvation? Does Obama have—despite the brayings of the right—too much faith in the markets at a time when prudence suggests that they cannot rescue themselves? We do not know yet, and will not for a while to come. But as Evan—hardly a rabble-rousing lefty—writes, a lot of people have a "creeping feeling" that the Cassandra from Princeton may just be right. After all, the original Cassandra was.

http://www.newsweek.com/id/191402

[GreenTea]

1. I support Obama but Krugman is correct the Bush holdovers in the Treasury certainly want status quo,

no real change....so the corporations can get even - too "bigger" to fail - Indeed years down the line the same thing (bailouts) will inevitably occur, why not, easy money, the banks and corporations know this and will use it again & create it again, it's their safety net and sure a way to steal our tax dollars...monopolies too big to fail.

Without going in to it......just simply look at the architect for the bailout Bush's republican Sec. of Treasury, Goldman Sachs, Henry Paulson saying just a couple of days ago that ex Bush appointee, Tim Geithner knows what he's doing, and what a fine job it is that Geithner is doing, for the corporations that is....Paulson is loving keeping the corporate status quo, no penalties, no real change...If you love Hank Paulson, you must adore the two corporate fucks Tim Geithner & Lawrence Summers!

Cheers to Paul Krugman!

"Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth -- of perhaps hundreds of billions of dollars -- to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed). Soaring bank share prices on the morning of the announcement, and in the week of leaks and hints that preceded it, are an indication of the mass bailout at work. There are much fairer and more effective ways to accomplish the goal of cleaning the bank balance sheets.

A major part of the plan works as follows. One or more giant investment funds will be created to buy up toxic assets from the commercial banks. The investment funds will have the following balance sheet. For every $1 of toxic assets that they buy from the banks, the FDIC will lend up to 85.7 cents (six-sevenths of $1), and the Treasury and private investors will each put in 7.15 cents in equity to cover the remaining balance. The Federal Deposit Insurance Corporation (FDIC) loans will be non-recourse, meaning that if the toxic assets purchased by private investors fall in value below the amount of the FDIC loans, the investment funds will default on the loans, and the FDIC will end up holding the toxic assets.

To understand the essence of the giveaway to bank shareholders, it's useful to use a numerical illustration. Consider a portfolio of toxic assets with a face value of $1 trillion. Assume that these assets have a 20 percent chance of paying out their full face value ($1 trillion) and an 80 percent chance of paying out only $200 billion. The market value of these assets is given by their expected payout, which is 20 percent of $1 trillion plus 80 percent of $200 billion, which sums to $360 billion. The assets therefore currently trade at 36 percent of face value."

http://www.huffingtonpost.com/jeffrey-sachs/will-geithner-and-summers_b_177982.html

[mdmc]

2. Grumman is right, but I still support Obama

he must know what he can and can't do..

[w4rma]

3. Don't be mesmerized by the idea that someone with power knows everything he needs to know. (nt)

[mdmc]

5. I'm not

[MarjorieG]

4. This a daily reissue?