Maybe It’s a Political Problem
Aggh, I’m really frustrated with the Geithner plan and frustrated with Obama (for the first time ever) for letting a plan like this be presented.
What frustrates me is that the Obama team won’t address the two main criticisms of the plan, which are
(a) that the gov’t will subsidize private investors to buy “toxic” assets from banks, for which they take huge profits if things go well and very small losses if things go badly
(b) even worse, the toxic assets have much less intrinsic value than this plan supposes and, in that case, it won’t work no matter what is bought and sold.
If true, then you have a situation where private investors walk away rich (or unharmed), the financial system stays broken, so the economy can’t recover, and the gov’t gets much closer to running out of money. Big fail.
And the above criticism of the Geithner plan comes from five or six economists or experts (and many more) on the “outside” who are as at least as sharp as those on Obama’s team. They may not be right on every point, but what they do have is a complete argument that makes sense.
Why doesn’t the Geithner plan make the same kind of sense? And why can’t Obama’s team address these concerns? It’s very unsettling because the result of failure … can’t be overstated.
Yet here, in a nut shell, is what Obama’s team has to say about these concerns:
Larry Summers: “I didn’t understand his argument.”: http://snipurl.com/eh2qc
That response is so insulting and inappropriate because, clearly, he/they does understand the argument but can’t address it politically, which is usually okay, but *not in this case.*
This situation has transcended politics, but with no response from Obama or his team, we don’t know how much is due to political maneuvering and how much is a bet - a belief - that “a” is a necessary evil and “b” won’t happen.
If it’s the latter and they really feel this plan has legs and “b” in particular - i.e., an all-in bet by the gov’t that the value of these toxic assets won’t stay depressed in this new economy but will rise as markets stabilize to a level that makes everyone whole - then we have to know what gives them such confidence.
Just this morning, Geithner said to Congress:
Rep. Gresham Barrett: What is the backup plan?
Secretary Geithner: This plan will work.
Why? Tell us why it will work when there is a good argument that it won’t?
There is also a growing sense that if this plan doesn’t work, and things don’t return to normal, the method for dealing with it in which the gov’t uses public money to fund investment with private investors who get big rewards but take little risk could become embedded in the system. In other words, capitalism becomes a stunted capitalism for the few, which is most definitely not good for you and me, and the only way the market can operate, and so it will be tried again . .. and one more time … until it has real staying power.
I must say that the Geithner plan, as it’s played out over the past few months, gives me a low level of confidence in our political system and its ability to handle a completely unprecedented financial/economic crisis. This is encapsulated in the fact that some of the top economic people in the country (Roubini, Buffett, Krugman, Ehrenberg, Haque, and so on) can’t ask a simple, consensus-based question and get an answer to it.
I wouldn’t be surprised at all that if Geithner and Summers and others on the Obama economic team - and Obama himself - were on the outside they would be asking the same questions. So, it’s the political system that’s broken, that finds itself in the deep end of a pool unable to swim, and I’m concerned it’s almost going to have to break down before we can get to the bottom of this financial/economic crisis and set a new course.
Maybe when this is all said it done, that’s what it will take. We’ll have to rebuild the political system, too.