As noted below, the Geithner plan will probably fail big. It's failure will discredit the Democratic party, even though a true
Democratic solution isn't even being tried. See Krugman's latest
; see this response by James Galbraith
. From Galbraith:
But the way to determine whether Geithner's and the banks' stated view of the toxic assets has any merit, is to demand an INDEPENDENT EXAMINATION OF THE LOAN TAPES, particularly looking to establish the prevalence of missing documents, misrepresentation, and fraud.
Galbriath keeps repeating the phrase INDEPENDENT EXAMINATION OF THE LOAN TAPES in all caps, something his father -- whose dry, understated wit was legendary -- never would have done. These days, one must shout to be heard.
What are loan tapes? The term is a holdover from the days when computerized information was stored on tape. A "loan tape" offers a precis of the relevant data for each loan; if you're looking for signs of fraud, start with the tapes. Examining that data is the only way to determine how much each asset is truly worth. Otherwise, you are relying on the word of someone who may be a con artist.
Geithner refuses to do that kind of investigation. Instead, he wants to bet the country on the delusion that the properties are currently undervalued. He's hoping that, once the panic has passed, everyone will see that the house in Oakland now going for $60,000 really should
be priced at $400,000, simply because some idiot arranged a $400,000 deal for the place back in 2006, when the mania was at its height.
In the long run, Geithner is right. One day, that property will again be worth $400,000. But when? The same year that Kirk meets Spock? We don't know. We can't think that
far ahead. In the long run, we are all dead.
Why does Geithner refuse to EXAMINE THE LOAN TAPES? Why does he refuse to do the necessary Sherlock Holmesing?
Because Holmes caught bad guys, and Timmy does not want to do that. Geithner is of the Street, and he wishes to protect his Street brethren. The Geithner solution encourages bankers to loot the system, because Uncle is paying the bills and no-one will hold the miscreants accountable for past or present misdeeds.