Dean Baker: "Obama prepared to risk his presidency on behalf of Wall Street banks"

[Better Believe It]

The Geithner Plan: Billions More for Failed Banks
The last-ditch effort to save Wall Street will hurt taxpayers and still require another big bailout down the line
by Dean Baker
March 23, 2009

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( www.conservativenannystate.org) and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.




Treasury secretary Timothy Geithner's latest bank bailout plan is another Rube Goldberg contraption intended to funnel taxpayer dollars to bankrupt banks, without being overly transparent about the process. The main mechanism is a government guarantee that would allow investors to buy junk with a 12-to-1 leverage ratio, where they only risk the downside on their own investment, not the borrowed money.

Ostensibly, this is supposed to reveal the "true" price for junk assets, as investors compete at auctions to buy assets under the new rules. But this story doesn't pass the laugh test. All we will really learn is what price investors are willing to pay for these junk assets when they are given a large subsidy from the government to buy them. In reality, this plan is a way to use taxpayer dollars to get investors to pay far more than these assets are worth in order to give more money to bankrupt banks.

It is also worth noting that this is a situation that invites all manner of fraud, since there are very large government subsidies that could be appropriated through clever schemes. The Obama administration assured the public that the Federal Deposit Insurance Corporation (FDIC) will be closely monitoring the programme, but the FDIC does not have the staff or the expertise to effectively track a programme of this size. The situation is complicated further by the fact that many of the big actors are likely to be hedge funds and private equity funds, which are almost completely unregulated in the current environment.

It is hard to understand this plan as anything other than a last-ditch effort to save the Wall Street banks. Unfortunately, Obama seems prepared to risk his presidency on their behalf.

Please read the complete article at:

http://www.commondreams.org/view/2009/03/23-13

[Deja Q]

1. To be a "one term president". "risk his presidency" suggests impeachment.

[Better Believe It]

34. Not at all. Obama suggested he'd be a one term President if economy isn't better in 4 years

[ArchieStone1]

59. I don't see it that way

Risking one's presidency could mean risking to lose the nomination or the general elections due to what Bakers see as a possible outcome of his economic moves.

[ProSense]

2. Isn't it his Presidency to risk? n/t

[burythehatchet]

6. oh. my. god. Thankfully for you, words fail me.

[ProSense]

9. .

:rofl:

[burythehatchet]

13. the only thing inaccurate about that smilie is the missing straightjacket

[ProSense]

14. Speaking of a "straightjacket"

has anyone responded to the freaking out in the other thread?

[burythehatchet]

18. Yes.

[midnight]

3. This does not sound like we have anyone standing up for

us poor folks-darn!

[Thrill]

4. Thanks for your concern Dean

[burythehatchet]

8. must be another freeper.

[FrenchieCat]

5. I've been staying cool up to now.

But tell Dean Baker to kiss my fine black/white ass....and ask him if he ever worked on the front line with the underpriviledged for a tenth of what he was worth?


PS. You left out the "Seems" out of the quote you used as your title. But then, you knew that...which is why you took it out, right?

[tuvor]

25. Thank you for pointing out Better Believe It's creative editing.

Posts that take liberties with someone else's words like this should be up for mandatory deletion. Especially when they have the gall to slap a couple of quote marks around the edited work.

[Better Believe It]

35. This is what he wrote. You have a problem with that?

"It is hard to understand this plan as anything other than a last-ditch effort to save the Wall Street banks. Unfortunately, Obama seems prepared to risk his presidency on their behalf.

[tuvor]

40. Of course not, but you apparently do. You conveniently edited out "seems" in your subject line.

And there was no reason to.

[Better Believe It]

44. Well it sure does seem that way, doesn't it?

Anyone who bothers to read the post, as you did, knows exactly what he wrote.

So what's your beef?

One word?

Sure.

Well, if you can't dispute the writers comments, I suppose you should quibble and make a real big deal about one word which you felt should have been in the post caption.

Picky, picky, picky!

If you don't agree with the article state your objections.

I'm listening!

[tuvor]

50. Oh, FFS. My posts here have had nothing to do with Baker, and everything to do with your inaccuracy.

If you insist on replying to my posts, at least do us both a favour and pay attention to what I've written, and knock it off with the misdirection.

You want to know what my beef is? A person's words matter. So don't go misrepresenting what others say.

Yeah, even if is deleting just one word, and slapping quote marks around what's left.

"Obama prepared to risk his presidency on their behalf" and "Obama seems prepared to risk his presidency on their behalf" are not the same thing. Do you really need it explained to you that the first is about Baker's certainty, while the other is about his impression?

Picky, picky, picky, my ass.

Words fucking matter.

It is as simple as that.

[Better Believe It]

79. Your post SEEMS like a not so clever distraction which is easier than ....

conducting a head on attack on the article you apparently disagree with.

But, I'm not going to let you off that easy.

So why do you think that Obama doesn't seem prepared to risk his presidency on behalf of Wall Street?

[Political Heretic]

42. I have.

And it doesn't really change the fact that I, and a LOT of voices that I really respect - think this is not only a terrible idea, but another fucking wall street give away.

[camera obscura]

69. I have, and that's why I'm determined to fight for a solution that benefits EVERYONE.

[chill_wind]

72. I have as well. Many of us have, and I agree with your call.

[ProSense]

7. Here are some other points of view:

Krugman: Why was I so quick to condemn the Geithner plan?

Here's one attempt to define a nationalization plan

Brad DeLong on Obama's plan, Krugman on DeLong

Brad DeLong: I Think Paul Krugman Is Wrong

POLICYMAKING WITHOUT LAWMAKING....

Krugman just linked to a piece that he says matches his example. I went to the link and one of the comments there struck me:

if you are going to use numbers, please use numbers that are reasonable.

the numbers you have chosen (50% chance of being worth zero and 50% chance of being worth 100) are cooked up to maximize public losses and maximize private gains. in reality, no pool of loans is going to be worth zero and no pool is going to be worth 100, and in reality the bids are going to track the final values at least a little bit.

there’s no doubt that this is intended as a subsidy and the most likely case is that it is a subsidy.

however, what we are paying for here (if we are paying for anything) is some clarity about marks. if the marks are really that bad (pools of loans marked at 50 but they could be 0 or 100) then we are going to pay for that clarity one way or another.

It would help if those proposing nationalization outline a plan with numbers as realistic as they can get them to show the feasibility of nationalizing large institutions like Citi.

[Larkspur]

31. Why do you believe the poster and not the author of the blog

How do you know that the poster has his/her math correct?

[ProSense]

38. Well, the author of the blog responded and

the poster evidently had a point.

[Larkspur]

76. Saw this description of the Geithner plan in a DailyKos diary

It's from a person who will be a bidder on the toxic assets.

DK thread titled "I am taking this link from "expatjourno" in diary "The Krugmath - What Paul Krugman Didn't Say Hotlist"

I am SAC Capital. I get to be one of the bidders on bank assets covered by the program

Citi holds $100mm of face-value securities, carried at $80mm.

The market bid on these securities is $30mm. Say with perfect foresight the value of all cash flows is $50mm.

I bid Citi $75mm. I put up $2.25mm or 3%, Treasury funds the rest.

I then buy $10mm in CDS directly from Citi on the bonds for a premium of $1mm.

In the fullness of time, we get the final outcome, the bonds are worth $50mm

SAC loses $2.25mm of principal, but gets $9mm net in CDS proceeds, so recovers $6.75mm on a $2.25mm investment. Profit is $4.5mm

Citi writes down $5mm from the initial sale of the securities, and a $9mm CDS loss. Total loss, $14mm (against a potential $30mm loss without the program)

U.S. Treasury loses $22.75mm

Great program.

It's just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction.

You've also transmuted a $30mm economic loss into a $36.75mm economic loss because of the laundering. So its incredibly inefficient.

How did fraud and money laundering become the national economic policy of the US?

One would have to be a criminal to participate in this.

[Political Heretic]

43. What do you think this shows?

You think we're not aware that some smart people support the plan and some smart people don't?

No shit, Sherlock.

I agree with those who oppose the plan, and I believe their criticism makes extremely good sense. I disagree with some of those who support the plan, and I don't think their reasoning makes good sense.

It's as simple as that.

[ProSense]

45. Nothing at all. Obama is risking his Presidency.

Anyone think about what happens if the risk works out in his favor?

[depakid]

10. The third point is particularly troublesome- and not often raised

A third result of this path is that the subsidised class of assets would rise in value relative to assets that do not benefit from the government subsidy. This could cause banks that are relatively healthy, and therefore not taking part in this programme, to suffer. With investors opting to buy assets that come with government subsidies, the demand for mortgages or mortgage-backed securities that don't have these subsidies might suffer.

[chill_wind]

32. It is worrisome, Galbraith argued the same point in his op-ed over the weekend. n/t

[Supersedeas]

80. legislative winners and losers on the taxpayers dime

[amborin]

53. talk about scary unintended consequences! that takes the cake!

[firedupdem]

11. Some people are struggling with President Barack Obama. n/t

[FrenchieCat]

16. You mean the poster who has nothing to say, and everything to copy and paste?

[dionysus]

77. you bitter believe it!.. uh, "better" believe it that is...

:rofl:

[jefferson_dem]

20. I wonder if the OP even voted for him.

Seriously, some are damn determined to make DU more like freeperville in their persistent, scattershot of Obama hate.

[ShortnFiery]

36. Oh brother! THINK about what exactly is being done? It's pro-redistribution of wealth UPWARD.

Is THAT more of that what we want? I like Obama but he is not the alpha and omega ... and he certainly is NOT a liberal. I wish. :(

[Thrill]

12. I like how all these people think Obama is some wide eyed fool

This isn't Bush. Obama has likely studied this stuff more than these people think. And unlike the people writing these articles, he's seen the books with these stress test. I'll trust him.

[depakid]

15. Oddly- some people can't seem to grasp public policy

Preferring cultlike devotion instead.

[FrenchieCat]

23. Yes, we are inferior to your mighty mind!

massa'!

[depakid]

26. No, you're just unable or unwilling to rationally discuss policy choices

without taking some wierd sort of offense at very responsible- and IMHO very accurate criticism.

[FrenchieCat]

27. You offend, not me.

I've been rationally discussing policy choice. I'm not sure where you've been.

I've yet to see you actually start a thread about any policy anything?

[depakid]

30. About all I see are knee jerk defenses of anything the administration does

-including some pretty absurd rationalization, like with the DVD faux pax.

This of course is a just a bit more serious of a matter... with much higher stakes for everyone involved (other than those getting the no-recurse loans).

[Drunken Irishman]

47. So now we're back the cult meme. God I love DU!

[Jennicut]

52. There are many cultists around here. Not all of them are the Obama-type however.

I am willing to see where this plan takes us first. Next stop is nationalization because there is nothing else. The hyperbole and handwringing are kind of cracking me up today.

[Danger Mouse]

54. Only Obamabots can be cultists, right?

:eyes: It's only hero worshiping when THOSE loonies do it. :P

[Drunken Irishman]

55. We're looking for a virgin to sacrifice to our Obamagod.

Know of any?

[Jennicut]

56. Sorry, I lasted until I was 23 though!

:P

[Danger Mouse]

58. Surprisingly, I can't help you with that.

:P

[Jennicut]

57. There are bots of all kinds out there. I am just realizing it now.

Its actually down right amusing.

[Drunken Irishman]

62. You're a cat bot! You catist!

[Jennicut]

63. Its true. You exposed me! Oh no!

[liberalsince1968]

82. If the shoe fits...

[Two Americas]

17. this has nothing to do with personalities

This has nothing to do with personalities, nor whether or not you personally trust this or that politician.

[Hansel]

22. God only knows. It's almost laughible.

Oh-oh, now they'll say I'm a blind Obama worshiper or something equally insane.

[chill_wind]

65. Articles and entire books. And Congressional testimony. As a progressive

he's worth weighing. And so are his other associates.

/

[Hawkowl]

73. I don't think so

I think Obama is a political genius, with a HUGE blindspot in economic policy. Free market, free market, free market, slightly more regulation. That is ALL I hear from his economic team--especially from two of the architects of our financial meltdown, former Treasury Sec Summers and former NY Fed Governor Giethner (basically the number two guy behind Greenspan). Now the banking salvage plan is basically to give hedge funds a guarantee and free reign to buy toxic assets and game the system. What A FUCKING CROCK OF SHIT.

This blind spot in Obama's policy makes sense if you consider that he spent his academic teaching years at the University of Chicago. The holy grail of American laissez faire, Milton Friedman, bullshit free market economics.

[brentspeak]

83. "Obama has likely studied this stuff more than these people think"

Obama told you this? When did you have a meeting with him?

[EFerrari]

84. They don't think he's a fool, they think we are fools. n/t

[QC]

19. Dean Baker is an enemy of the people. n/t

[jefferson_dem]

21. Nah. Perhaps President Obama is though...

according to the OP and Dean Baker.

[ShortnFiery]

37. Whoa! You commented in another thread that Krugman is the enemy.

I'm so damn confused! Oh I get it, anyone who does not "stand in line" behind every SINGLE thing this Administration does is "an enemy of the people?" :(

[QC]

49. You are an enemy of the people. n/t

[spoony]

75. n/t messages are enemies of the people....n/t

[MarjorieG]

24. On TV, Obama promised change not radical change. Stabilize first; always mentions re-regulating

Summers said Krugman was complaining about the problem (of underlying bank problems) the plan didn't intend to fix (with capitalization/lending).

[burythehatchet]

28. Seriously, why even post something in this sewer of a forum.

[glitch]

29. Thank you for posting. Dean Baker has always been an economist worth reading. K & R nt

[Larkspur]

33. Oh No! Another credible economist slams Geither's Wall Street give away, I mean plan

When Obama picked Summers to lead his economic team, I new that he was not really interested in a Team of Rivals approach. Summers, who championed deregulation of the financial industry during Clinton's Admin, will not tolerate those who do not agree with him. Geithner is a former Goldman Sachs yahoo, so I'm not surprised he sees salvation from hedge fund managers, the very ones who helped caused the economic meltdown.

[ShortnFiery]

39. And sadly, before most of us Non-Wall Street Peons catch-on, the crooks will have outsource most ALL

of the USA's wealth. Forget about Unions because people will be fighting with each other for "the scraps."

[Political Heretic]

41. I deeply respect this guy, and am well familiar with the CEPR.

His opinion carries a lot of weight with me.

[ProSense]

46. What are you going to do if he's wrong?

What if Obama takes the risk and he's sucessful?

[Political Heretic]

67. I'm say I was wrong, thank God, and celebrate?

What the fuck do you think I would do?

[chill_wind]

48. re: gravitas- I didn't realize Joseph Stiglitz was on his board as well.

"CEPR was co-founded by economists Dean Baker and Mark Weisbrot. Our Advisory Board includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Janet Gornick, Professor at the CUNY Graduate School and Director of the Luxembourg Income Study; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University."

[Political Heretic]

68. This organization delivers incredible quality analysis.

It ranks up there with the Economic Policy Institute and the Center on Budget and Policy Priorities.

[chill_wind]

71. Two people from his org were just in front of Congress this month

giving testimony to housing, financial, education & labor committees, which I also didn't know.

http://www.cepr.net/index.php/publications/reports/testimony-of-dean-baker-before-the-subcommittee-on-housing-and-community-opportunity/

http://www.cepr.net/index.php/publications/reports/testimony-of-eileen-appelbaum-before-the-house-committee-on-education-and-labor/

[Hawkowl]

74. If just one

If just one of these economists would've been chosen by Obama I would be doing cartwheels. Instead we have....Wall Street tools.

[Danger Mouse]

51. I wish people other than you would post some of this stuff...

so I'd feel more inclined to read it.

[chill_wind]

60. Here's his website. Go for it. http://www.cepr.net/

[Danger Mouse]

64. Thanks.

:)

[chill_wind]

66. :-) It's worth the visit.

:thumbsup:

[chill_wind]

70. He also has a blog here "Beat The Press" with commentary on the media's coverage

of the economy:

http://www.prospect.org/csnc/blogs/beat_the_press

[ProSense]

61. Please

read me

It'll be interesting to hear the criticisms.

[ShortnFiery]

78. If the GOP ever gets back in control of The Executive Branch, it does not bode well for the

Average American. :(

[chill_wind]

81. kick