[Kghyutgykim]

Specifically, it's the banking plan. And it's pretty ****ed. The Admin doesn't appear to have the guts to go through with large scale nationalizations. Only the FDIC seems to know what it's doing; too bad Bair couldn't be at Treasury instead of Geithner...

[XinordiX]

this refusal to face the facts Bush III

[BPitt]

When Krugman is decrying the Admin's stimulus proposal, you know they're off track.

:???:

Krugman was a huge critic of the stimulus compromise saying it was way to small by half and contained to many useless tax cuts which hardly result in any stimulus at all. Krugman said he wanted more like 50%-60% of the stimulus on hard infrastructure projects instead of around 5%.

[Affolfembonge]

Honestly that's what we need to do. Japan's lost decade happened because they dicked around for years and years before bothering to tackle their zombie banks. The proven model is the Swedish model used during Swedens 1991 banking crisis where Sweden nationalized virtually all of the zombie banks, fixed them with government money, then later reprivatized them.

That's the model proven to work while the one we're following, for political reasons because the politicians are afraid of nationalizations, has been proven to not work very well. We need to do what works.

[MaigicyuNinia]

When you ask the people who screwed the system up how to fix it, the only thing they know to tell you is about the system as it is. In a horribly twisted way, Geithner is right. "If everyone will just pretend that these items have value, then the whole house of cards will magically rebuild itself." However, as with all illusions, once we know how the trick works, no one is buying smelly garbage and nonsense. The loans piled on the CDSs, piled on the overpriced mortgages were all going to fail as soon as the buyers figured out that all three items were worthless and only the mortgages can be fixed. Even that fix requires ousting the first "owner" and selling at an adjusted price and interest to an actually employed buyer who can reasonably make the payments.

[fkisjjdhh]

Krugman's right on this. Fixing the financial sector is the most important task facing Obama, but he's ignoring it in favor of ramming his plans to greatly expand the federal government through Congress while he still has a crisis atmosphere to sell it with. Obama hasn't even managed to give Geithner much of a staff to work with over at Treasury, for christ's sake. Obama should be nationalizing the banks now, but he'd rather concentrate on his political goals while the economy goes down the toilet.

[diemeareendup]

Honestly, I think Obama has given Geithner the ball to run with since he's supposed to be the "expert" but the problem is Geithner seems to be very much an industry insider with few new ideas so he just wants to keep half ass tinkering at the edges instead of really cleaning the mess up like the Swedes did in 1991.

[otheloComRole]

Obama hasn't even managed to give Geithner much of a staff to work with over at Treasury, for christ's sake.

There are anonymous holds on key members of the economic team. Irresponsible Republican obstructionism.
http://www.bloomberg.com/apps/news?p...oV0fU&refer=us

[Lolita Palmer]

The proven model is the Swedish model used during Swedens 1991 banking crisis where Sweden nationalized virtually all of the zombie banks, fixed them with government money, then later reprivatized them.

Note, "virtually all" in Sweden's case ended up being two: Nordbanken (already a state bank, IIRC) and Gota Bank.

Also, as a Swedish economist points out:

http://www.petersoninstitute.org/realtime/?p=504

Sweden did not nationalize its banks. It was Norway that did so, which is an alternative model. In Sweden, a temporary emergency bank authority was set up on the model of the US Federal Deposit Insurance Corporation. It had outside, mainly foreign, consultants to scrutinize all bank debts and establish objectively which were nonperforming. The banks were forced to write off their bad debts and transfer them to bad banks.

Sweden had no aggregator bad bank and the bad banks were not nationalized. Each big bank set up its own bad bank. They were given illustrious names such as Securum, Retriva, Nackebro and Diligentia. Securum was the biggest bad bank belonging to the already state-owned bank, Nordbanken, and it became a separate state company. The private bad banks, however, remained the property of the private banks from which they were removed.

Nobody traded toxic waste at the height of the crisis in Sweden. Such trade is an unnecessary complication. A bad bank is not a bank but a private equity fund, which does not need much capital or recapitalization. Its task is to isolate the rotten apples so that they do not contaminate the good loans in the cleansed banks.

The bad banks sold off their assets at a leisurely pace over several years to maximize their value, avoiding excessive depreciation of assets through fire sales. Any gain was to the benefit of its owners. In this way, Sweden avoided the problem of trading undervalued assets. In the end, even Securum made a small profit. Thus, the common American idea that the Swedish bank resolution involved major nationalization is a sheer misunderstanding. Only one failing private bank, Gota Banken, was merged with an equally bankrupt state bank. Sweden avoided private-public partnerships, of which Fannie Mae and Freddie Mac are the most telling and repulsive example, because, as Larry Summers so memorably has stated, public-private partnerships usually means that profits are privatized and losses nationalized. People just do not understand what the Swedish banks did and are trying to use that misunderstanding to push for major nationalization.

[TimEricsson]

Good research Imran.

It's clear that Obama doesn't have a clue about the financial system, so he should just sit down and not tinker with it.

[SawbasyWrab]

****. That's a good point.

[drgshmcm]

Dithering my ass. They're just bleeding the system dry. This country is so ****ed.

[herawaq]

It is just lemon socialism.

Socialism for the rich and free markets for everyone else.

[XiWm9O9S]

I agree with Krugman. However...

They're dithering probably because they fear that if they nationalize the banks, the folks/foreign governments who hold mortgage-backed securities in vehicles set up by the banks (SIVs, especially with Citi) will demand that the US government make them whole.

Do we want the US government to feel obligated to pay to correct all of the bad decisions of these foreign government and individual investors? As far as I know, there's trillions of dollars in losses from the housing bubble bursting, and much of it is invested in these SIVs.

I figured there had to be *some* reason for the dithering. Maybe this is it.

-Arrian

[xresultsearch]

Idiot Reagan really ****ed **** up.

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

-Keynes

[Hpdovoxm]

The GOP can get away with calling for it, cuz no one will call them commies.

Agreed.

[N1bNXuDb]

No, I'm wondering why he hasn't made any discernible progress on fixing the biggest problem facing the country right now.

[loginereQQ]

I agree with Krugman. However...

They're dithering probably because they fear that if they nationalize the banks, the folks/foreign governments who hold mortgage-backed securities in vehicles set up by the banks (SIVs, especially with Citi) will demand that the US government make them whole.

Do we want the US government to feel obligated to pay to correct all of the bad decisions of these foreign government and individual investors? As far as I know, there's trillions of dollars in losses from the housing bubble bursting, and much of it is invested in these SIVs.

How does this sound?

http://baselinescenario.com/2009/03/...ees/#more-2799
The story goes something like this. Let’s say that Citigroup were restructured - via bankruptcy, or via government conservatorship - in such a way that creditors did not get all their money back. (None of this applies to FDIC-insured deposits or to recently-issued senior debt that is explicitly guaranteed by the government.) They might be forced to convert debt for equity, or they might be stiffed altogether. The first-order concern is that this would have ripple effects that could take down other financial institutions. According to Martin Wolf, bank bonds comprise one quarter of all U.S. investment-grade corporate bonds; losses would be spread far and wide, hitting other banks, pension funds, insurance companies, hedge funds, and so on. If Citigroup did not support its derivatives positions, then institutions that bought credit default swap protection from Citi would face further losses. (I believe that most U.S. banks were net buyers of CDS protection, however.) The fear is that it will be impossible to predict how these losses will be distributed and who else might go down.

The second-order concern is bigger. After all, Lehman did not seem to force any major financial institution into bankruptcy, although it may have twisted the knife that AIG had already stuck in itself. Once investors figure out that bank debt is not safe, they will refuse to lend to any banks, and we are back in September all over again. Or almost: it is possible that the Federal Reserve’s massive efforts to provide liquidity to the banking system will be enough to keep banks functioning. But who wants to take that risk?

...

As an aside, one of the steps in Sweden’s sometimes-heralded bank rescue program was an explicit government guarantee on all bank liabilities. If any country could guarantee its banks, you would think it would be the U.S. But the real barrier to taking such a step is probably political more than anything else.


Yeah, political.... like how do you explain to voters that they have to take the hit for bad investments made by furriners while their own houses crash around them. Good luck with that.

[Andromino]

Wow... Mr Emanuel seems a little sensitive.

[conurgenceDen]

It's amazing how much of my job the GOP wants to do for me, by sending the economy into a full blown Great Depression (number four).