The Geithner-Summers plan, officially called the public/private investment programme, is a thinly veiled attempt to transfer up to hundreds of billions of dollars of US taxpayer funds to the commercial banks, by buying toxic assets from the banks at far above their market value. It is dressed up as a market transaction but that is a fig-leaf, since the government will put in 90 per cent or more of the funds and the “price discovery” process is not genuine.Sachs then demonstrates his point with an illustrative example. You can read his piece for the full run-down; I'll cut to the chase:
The idea of “private sector price discovery” is therefore flim-flam. There would be price discovery if the government’s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.Here comes the solution, the road not taken:
The banks could be saved without saving their shareholders – a better deal for taxpayers and without the moral hazard of rescuing shareholders from the banks’ bad bets. Most simply, the government could provide loans to buy the toxic assets on a recourse basis, therefore without the hidden subsidy. Alternatively, the plan could give the taxpayers an equity stake in the banks in return for cleaning their balance sheets. In cases of insolvency, the government could take over the bank, the much dreaded nationalisation, albeit temporary.Well, yeah.
It's going to be difficult to write the history of this era, since partisans on both sides are already distorting what has occurred and is occurring. We must make clear to future generations that Dubya -- and no-one else -- created this problem by allowing the mortgage lenders and the derivatives market to go unregulated. But Obama has ruined his historic opportunity to solve the crisis.
As Triumph the Insult Comic Dog might put it, replacing Bush with Obama is like pooping on poop.
11 comments:
Obama is "Da Shit"
Joseph, Obama is what we've got. I dearly wish people would stop whining (or howling) about it. In fact, not everyone is; but surely, insofar as we are, it benefits the bad guys that we thus spin our wheels getting nowhere in this exceedingly challenging situation our republic and the world is being held hostage to.
There are relatively saner voices... most everyone with even a few neurons functioning sees that the present path is wrong. But trying to see a solution through the fine and coarse points of disagreement and intentional obfuscation is nigh impossible for all the details and noise. Each facet of this problem, and there are many, would seem to require long hours (if not months) of study and thought. And it has to be fixed yesterday if not sooner. What a fine mess we are in.
O.K. ... saner voices in the last week, not that I agree with them all, or they with each other:
http://www.charlierose.com/schedule/?date=2009/3/23
http://www.pbs.org/moyers/journal/03202009/transcript2.html
or the video of same,
http://www.pbs.org/moyers/journal/03202009/watch2.html
James Galbraith, I do agree with, as far as he goes (which is way out front of most)...
No Return to Normal: Why the economic crisis, and its solution, are bigger than you think.
http://www.washingtonmonthly.com/features/2009/0903.galbraith.html
And I beg you, Joseph, allow me one 7 1/2 minute video, "Let Me Talk To You About Banking..." in which Lyn does not appear and is barely mentioned (and in which there is very cool FDR speech and depression-era footage). It’s about what FDR did.
http://www.larouchepac.com/lpactv?nid=9746
And let's be sure to thank a progressive that we have another neocon in the White House. Nice work, guys.
It just proves the old adage, "Never set a man to do a woman's job."
Perry, Obama is not a neocon. I can't imagine how anyone could rationally argue he is. Not qualified, certainly; he's way light on the needed experience.
If you are suggesting Hillary would probably display more courage in dealing with the job, I have always agreed. We will never actually know.
It would be interesting to hear you argue that "progressives" put Obama in the WH with the man Moyer's interviews above; I don't think you'd win.
Among others, Soros had a lot to do with putting him there--progressive? Dr. Dean--self described fiscal conservative who fucked over Vermont's productive economy as governor, son of and brother to Wall Street. The loudmouth kids and Kossaks? I dunno... maybe they described themselves as progressives. Axlerod? The kid who wrote his speeches?
So which progressives ya gunna thank? I imagine there might be some you can name (bloggers?), but I'd have to see the argument as to how they were a very significant force in putting Obama in the WH.
What am I missing here? I'm certainly no expert on the history and status of progressives.
Well, Obama is continuing Bush's neocon misadventures in foreign policy so he qualifies on that count. He also wants to "reform" all those pesky "entitlements," and while we all know that Bush would have been (indeed was) stopped at the gates for even mentioning dismantling Social Security, we now see that in our Glorious New ObamaNess we are getting set to not only "reform" SS but also probably gut Medicare and "reform" health care entirely out of reach for all but the rich, and who knows what's next, maybe unemployment. Because sacrifices must be made, ya know! Yay team!
Look, I'm delighted that we have control of Congress; witness the just-passed sweeping environmental bill, a true victory for the good guys. Just as one example if we need a reminder that Democrats are mostly good to okay and Republicans are mostly evil. I get that some key differences exist, and matter. But that doesn't mean Obama isn't upholding some of the worst excesses of the Bush admin. in all its neoconny goodness.
"We must make clear to future generations that Dubya -- and no-one else -- created this problem by allowing the mortgage lenders and the derivatives market to go unregulated." But didn't Rubin and Summers (along with Greenspan and Gramm and many more) prevent regulation of derivatives and take down Glass-Steagall?
Yes, Eric, and those changes in the law were signed into effect by Clinton.
It must be admitted that the Democrats, quite before Obama, danced to the Wall Street financiers' tune.
Certainly Bush had his own unique part in all of this. But the stage had been set prior to his arrival.
XI
"...we have control of Congress; witness the just-passed sweeping environmental bill, a true victory..."
What do you mean, 'we,' kimosabe?
I don't know anything about the just-passed environmental bill, but I know a lot about Pelosi and who's pocket she's in. Are the U.S. taxpayers going to contract to buy a specified number of billion carbon-credits from Al Gore's London shop? We are going to halt industry and production for 10 years to hold the sea levels down? Fill a state with windmills and solar panels, turning it into a desert, to power an adjacent state?
O.K. maybe I should check it out before I spray my skepticism all around.
Eric, let’s not neglect to mention by name Lawrence ‘Larry’ Summers, now head of the National Economic Council, who has played a leading role in creating this economic crisis.
As Sec Treas in the Clinton admin., he was instrumental in repealing the Glass-Steagall Act (which separated private "investment" banking functions from commercial banking, who's job was basically protecting peoples' savings and aiding the development of communities.) The investment houses gave us the 1929 crash and its aftermath--and currently, the derivatives bubble. Thanks, Larry.
In the 1930s, Franklin Roosevelt intervened and protected WE THE PEOPLE from Wall Street and the so-called "free market" of Wall St. and London. Summers is totally from the bad side.
While Sec. Treas in the late 1990s, Summers promoted looting of the Russian economy, rabid deregulation in Japan and expansion of the already nasty powers of the International Monetary Fund. In 2000, he was right in the center of pushing the worthless--like casino plastic poker chips--derivatives which appear as assets on banks' books today. Thanks, Larry.
And he's right in there with Pelosi, Frank and Paulson on the current continuing bailout swindle, adding, at minimum, another $ thousand billion to the looming hyperinflation threat. Thanks again, Larry.
Obama fails to get rid of that bum and his presidency fails... taking the United States of America with it, most likely. If he does get rid of him, I'll betcha Geitner takes on a new look. (I don't believe Geitner is actually writing the policies he's presenting, it's much more complex than that, and I think Summers is near to the core of operations, whitehouse-wise.)
It's true that Obama experience is thin, but he's far more skilled and equipped to do this job than George W Bush was at the end of his 8 years catastrophe.
Clinton is socially progressive, but economically, I'm not sure she would have been a Marxist revolutionary. Unlike kucinich, but unless you take psychotropic drugs, he can't be considered a viable candidate in America. The sad truth is that there's no VIABLE candidate in the Democratic party with a true che guevara soul to start a REAL revolution in Washington.
If anyone here think that you could elect a true progressive to the Whitehouse, I'm sorry to say that you are OUT OF YOUR MIND. It will only change only when the rules for elections change.
A politician's loyalty goes to the hand who feeds them. And with the BILLIONS (if you're not just counting the presidential race money) required to win elections, the hands with the best food are in corporations and wall street.
Work to change how you elect your politicians. Otherwise, you will just keep bitching against the Republican and Democrat for the rest of your life.
"We must make clear to future generations that Dubya -- and no-one else -- created this problem by allowing the mortgage lenders and the derivatives market to go unregulated."
Now, while I understand where you are coming from ideologically, please be intellectually honest and incriminate the people who actually legislate the regulations and did nothing to change them...Congress. It has been reported, though not nearly widely enough, that the Democratic controlled congress would not allow increased regulation on the industry. I challenge you to follow the money and see where the $$$ take you. You might end up at a some Republicans, but the big money from Freddy, Fannie, AIG and other companies with skin in the game ends up, more often than not, in the pockets of the Democrats
'W' is a great scapegoat, and responsible for a nmber of things, but this one can't be laid at his feet.
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