Paul Krugman on the bailout: No Deal

[Pale Blue Dot]

I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.

As I posted earlier today, it seems all too likely that a “fair price” for mortgage-related assets will still leave much of the financial sector in trouble. And there’s nothing at all in the draft that says what happens next; although I do notice that there’s nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?

Here’s the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

http://krugman.blogs.nytimes.com/2008/09/20/no-deal/

[AzDar]

1. K & R ...

:kick:

[annabanana]

2. Poor Krugman...

Swimming upstream again. Right again. Cassandra again.

[Warpy]

9. He's got company

Ravi Batra says the deal as it's written will buy only a few weeks.

They're desperate. They're just trying to run out the clock now so the real crash will happen after the election.

They've given up on the idea of stalling it so it happens when Stupid is out of office.

[dkf]

3. I'm beginning to worry if they will price based on who they like.

There is so much room for abuse here.

[hay rick]

24. A Bush appointee play favorites?

That sounds so far-fetched. Kpete's journal touches on that subject. A quote, presumably from a draft of the proposed legislation:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

[BlooInBloo]

4. The problem with BIG SHITPILE isn't a lack of credit to buy it, it's that it's SHIT....

And then there's this lovely bit:

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

http://www.eschatonblog.com/2008_09_14_archive.html#2982717022308519670

[Delphinus]

5. Yeah, that just doesn't sit well.

I think we're being horribly screwed.

[femrap]

17. WASF

We are so f*cked.

[DeepBlueC]

6. on no, does this mean another fucked-up deal done ?

or it is the Democrats' fault? I think I am seeing what Bush means by a clean bill... a clean getaway from the heist.

[chupacabranation]

7. Ugh....

...So many nightmare scenarios...

...I just pray none of them come true and hoping there is some common denominator of decency among them all that will protect us...

Otherwise what have we but revolution?

[htuttle]

15. What other options?

Imagine a boot stamping on a human face -- forever.

Don't ever underestimate the cowardice of comfortable people.

[Solly Mack]

8. K&R

[Ichingcarpenter]

10. At least when Chavez takes over business they are semi healthy

Hey, everybody! Here's an idea lets go buy that burned out building over there
at the full price it was before it burned. Oh, and by the way, you don't own the land
its sitting on.

[nichomachus]

11. From qhat I can see, they're setting up a license to steal n/t

[jimshoes]

12. If the government is buying up those crappy mortgages

then the government is going to want to collect on those crappy mortgages somehow, don't you think? Is this the beginnings of debtors prisons or the government acting like a collection agency? And since the mortgages are paid off, are the old mortgage holders still going to try to collect on those mortgages?

[SmokingJacket]

13. It really blew my mind when Krugman et al was in favor of the big bailout, at first.

What did they think, it would be a cool, collected, rational and fair deal?

OF COURSE NOT!!! It's the Bushies!!!

The Treasury is totally trying to panic Congress into giving it a blank check. Same tactic was used before the Iraq War.

[Pale Blue Dot]

19. I honestly don't remember Krugman ever being in favor of a big bailout.

Can you provide a link?

[SmokingJacket]

20. It's possible I read too much into this column:

http://www.nytimes.com/2008/09/19/opinion/19krugman.html

On a second read, he seems to be withholding judgment. Which is not exactly being in favor, though it's not as negative as I'd hoped.

[tishaLA]

14. Glenn Greenwald had a great piece about this too

But Krugman saying this seals the deal for me.

[GoesTo11]

16. Four months left in this administration - time to loot the country

They're just going to pay hundreds of billions to bankers, and six months later take million dollar jobs with those same banks. Duh.

This is plain theft.

[checks-n-balances]

18. What gets me is, don't these billionaires have enough already?

Why can't they just slink away and leave the USA alone, while they enjoy their plunder? At least we'd have the chance to recover. With as many billions as they already have, they'll never spend it all anyway.

Oh yeah, I forgot...They have no conscience and get their kicks being cruel to other people, especially those they perceive as "weak" (i.e., lower & middle income people).

[Ghost Dog]

21. Do you have any idea the price of servants these days?

And how much it costs to run the yacht?

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4049655

[ThomWV]

22. I think you are right

[shanti]

23. they've been looting all along

but there's still some left. remember, * tried to get our SS, and we blew him off. he's just going in the back door to get it!