[theoconbrio]

Here's a roundup of (mostly centrist and liberal) economists commenting on the latest bailout plan:

http://economistsview.typepad.com/economistsview/2009/03/despair-over-financial-policy.html

More criticism from Simon Johnson, the former chief economist of the International Monetary Fund:

http://baselinescenario.com/2009/03/23/breaking-the-bank/

And a possible explanation for why Geithner is sticking so closely to Paulson's original plan:

http://www.talkingpointsmemo.com/archives/2009/03/game_theory_and_the_bailout.php

I don't have a clear opinion on this--I'm just trying to learn like everybody else. But I thought these posts gave a lot to chew on. (And could help shift the karmic balance of the board away from Glenn-Beck-Crazy-Base-Land! )

 

[amazongold]

Can you give a synopsis in plain English, please?

 

[Ender's Mom]

I have a headache from dealing with my mom... I'll read this tomorrow.

 

[theoconbrio]

I'm not sure I'm competent to do it. The main issue is whether the government should buy toxic assets* (or auction them) using public money (the Paulson-Geithner plan), or temporarily nationalize the banks, reassess the assets, stabilize the banks, and then reprivatize them (what Krugman and Johnson prefer).

People who favor the Paulson-Geithner plan believe that the market is risk averse and is underpricing the toxic assets. They think that the government can make money for the taxpayers by buying the assets at a price somewhere between their book value and their current market price, and then selling them off when they recover.

People who are opposed to the Paulson-Geithner plan believe that this scenario is WAY too optimistic, we're going to pay too much for them, the toxic assets won't recover, and that the taxpayer is going to take a huge bath and throw money into the pockets of the bankers who got us into this mess.

How did I do?

*Bonds or other obligations backed by assets that have lost much of their value; see http://en.wikipedia.org/wiki/Toxic_asset

 

[kaisdad]

Now I want some toxic assets, too.

 

[theoconbrio]

"Cocksikk Assets" -- WORST porn movie I have ever seen.

 

[Nick]

The left is pissed, so I'm optimistic. I like it better than nationalizing the banks, but honestly I've heard very little in terms of specifics, so until I catch up with the news I have no idea if it's a good idea or not. The market seems to like it.

 

[kaisdad]

Why would nationalizing the banks be bad? Doesn't that offer better protection for all concerned?

 

[theoconbrio]

The left is pissed, so I'm optimistic. I like it better than nationalizing the banks, but honestly I've heard very little in terms of specifics, so until I catch up with the news I have no idea if it's a good idea or not. The market seems to like it.

The "con" argument seems to be: It makes sense from the "market's" short-term interest, if by "market" you mean traders and executives at the big banks. Basically it's like buying rotting fruit at full price. What grocer wouldn't love that? But just because it's good in the short term for the big banks and the people who work for them, doesn't mean it's in the economy's long-term interest.

Or something like that.

 

[theoconbrio]

Why would nationalizing the banks be bad? Doesn't that offer better protection for all concerned?

Some people believe that even if it's a better theoretical solution, the size of the problem makes it practically impossible. There literally would not be enough government economists to oversee the process. Also, a lot of these big firms are multinational, and nationalization would get us into tricky positions with other countries. (Many countries have laws preventing a foreign government from having a direct ownership stake in one of their banks.)

Simon Johnson (the IMF guy I linked to above) says that bankers ALWAYS say this sort of thing when you propose temporary nationalization because they don't want to lose control or take a financial hit, and that you almost always can come up with workable solutions.

 

[Nick]

The "con" argument seems to be: It makes sense from the "market's" short-term interest, if by "market" you mean traders and executives at the big banks. Basically it's like buying rotting fruit at full price. What grocer wouldn't love that? But just because it's good in the short term for the big banks and the people who work for them, doesn't mean it's in the economy's long-term interest.

Or something like that.

I don't know enough about the plan to argue with you, so I'm just going to call you stupid. Deal?

 

[theoconbrio]

I don't know enough about the plan to argue with me, either!

P.S. Poopyhead! Meanie! Crybaby!
P.P.S. Lawyer!

 

[Nick]

I don't know enough about the plan to argue with me, either!

P.S. Poopyhead! Meanie! Crybaby!
P.P.S. Lawyer!

Ouch. That's low. Really low.

 

[Ender's Mom]

pshaww... no bed-wetting accusations yet? This thread is lame.

 

[theoconbrio]

pshaww... no bed-wetting accusations yet? This thread is lame.

Oh, we could do much worse than that! Let's see...

"Lindsay, what have you done with your life? Why don't you get married and settle down? Have a family? Wouldn't you like a baby? How about buying a house?"

It's the "Robo-Mom-Troll-O-Matic 3000"(tm). Perpetually stuck on the "nuclear option" setting.

 

[Jan]

OK, if you don't think nationalizing the banks would work, do you agree that strong regulations should be put in place? That's what has made Canada's banks so solid. Surely the US public would be supportive now, while the crisis is in full swing.

 

[Ender's Mom]

Oh, we could do much worse than that! Let's see...

"Lindsay, what have you done with your life? Why don't you get married and settle down? Have a family? Wouldn't you like a baby? How about buying a house?"

It's the "Robo-Mom-Troll-O-Matic 3000"(tm). Perpetually stuck on the "nuclear option" setting.

OMG!!!! I'm laughing so hard right now.

<3 ya Nathan

 

[theoconbrio]

Jan, Obama has made a pitch for a new regulatory structure, but I haven't seen anything proposed yet. I think there is broad agreement (except from the far right) that more sensible regulations are needed. But I bet that's going to be a legislative bloodbath trying to get it done.

 

[Nick]

OK, if you don't think nationalizing the banks would work, do you agree that strong regulations should be put in place? That's what has made Canada's banks so solid. Surely the US public would be supportive now, while the crisis is in full swing.

Appropriate regulations are necessary. In no way to I view regulatory action the same as nationalization.

I'm not one of those that think pure capitalism always works. We tried deregulation with mortgages, and clearly people aren't responsible enough to handle that level of responsibility. I'd have no problems with government regulations that limit who can get a mortgage, and how lenders grant loans.

I also think credit default swaps and collateralized debt obligations should be regulated akin to other securities. I don't know exactly how that would work, because I don't know the intricacies of those trades.

I think there's some middle ground that allows for greater oversight, but doesn't stifle growth with tons of red tape.

 

[dweck]

Oh, we could do much worse than that! Let's see...

"Lindsay, what have you done with your life? Why don't you get married and settle down? Have a family? Wouldn't you like a baby? How about buying a house?"

It's the "Robo-Mom-Troll-O-Matic 3000"(tm). Perpetually stuck on the "nuclear option" setting.

With RoboMom Troll-o-Matic set to deliver in its Lainie Kazan voice.