Viva Cantor-Krugman? House GOP Backs Receivership For Insolvent Banks
There were few details in today's outline of the House Republican budget alternative -- but on the thorny question of future bank bailouts, the GOP had a clear plan. And it looks a lot like Paul Krugman's preferred method.
TPMDC noted the first stirrings of the GOP's Krugman love earlier this week, when House Minority Whip Eric Cantor (R-VA) joined the liberal economist in lamenting the taxpayer subsidy built into the Obama Treasury's latest bank rescue plan. But today's Republican budget alternative goes even further, directly repeating Krugman's past criticism of the Treasury's bailout ethose:
In sum, the message with bailouts of this magnitude is that your profits will be private but your losses socialized.
Now, House Republicans go on to extrapolate a future of socialized losses as well as profits -- a prediction one suspects Krugman would reject. And then they go right back to Krugman-ville with this proposal:
[O]ur plan supports a process to address insolvent institutions that stops throwing good money after bad into failing institutions and places insolvent ones into temporary receivership. ... For insolvent firms, either the FDIC or a Resolution Trust Corporation-type entity would restructure these firms in receivership by selling off their assets and liabilities, reappointing private management, while protecting depositors -- a process that builds off Washington Mutual's arranged sale last year.
Here's how Krugman suggested combating the financial crisis back in January:
A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: It seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, Resolution Trust Corp.; paid off enough of the banks' debts to make them solvent; and sold the fixed-up banks to new owners.
When I asked House Minority Leader John Boehner (R-OH) directly about his alternative budget's embrace of more direct government involvement in the winding down of insolvent banks (using the word "liberal"), he affirmed that a receivership scenario "not unlike what happened under [the Resolution Trust Corporation] would be a better way to resolve" the unanswered questions of banks' financial health.
It's one thing for the party of smaller government to embrace more government involvement in insolvent banks than the Obama administration ... but this also raises the question of whether Republicans would consider forcing a House vote on creating a new version of the Resolution Trust entity. It would be illuminating to see how many Democrats would be in their corner.
Late Update: A reader writes in to make a very good point about this Carroll-esque turn in the Republicans' bailout stance:
[This] is actually great news for the Democrats. As Krugman has stated, his greatest fear is that the Geithner plan will not work and that by the time that becomes clear the Obama Administration will have squandered the political capital it would need to advance the bankruptcy-capital injection plan. With the GOP now adopting Krugman's line, there's no need to fear the absence of political capital since the GOP is binding itself publicly to the strategy. This is a win-win for the Obama Administration and the American people.
Josh
Matt
Eric
I'll bet if you pressed him, Kantor wouldn't even be able to tell you how the RTC operated.
March 26, 2009 2:07 PM | Reply | Permalink
This really should tell you all you need to know about Krugman. I wish he'd just join the Republican Party and make it official.
March 26, 2009 3:29 PM | Reply | Permalink
If it's a better idea then he'd better endorse it. It might be the first good idea Republicans have had in decades.
March 26, 2009 3:36 PM | Reply | Permalink
First the banks, then the 7-elevens. Communism coming soon to your local strip mall.
March 26, 2009 4:21 PM | Reply | Permalink
That statement coming from the likes of you is hilarious.....
March 26, 2009 3:38 PM | Reply | Permalink
Thanks!
March 26, 2009 4:19 PM | Reply | Permalink
Yeah Candide, let's establish some framework for discussion.
1.Everything the Government says (starting 1/20/09, 12 pm EST) is absolutely and singularly true and correct. Everything opposition to the Government agrees with (starting 1/20/09, 12 pm EST) is wrong and reprehensible. Any member of the public which expresses opinions that are not completely supportive of the current Government views automatically becomes a member of the opposition.
2. Everyone who said anything that can be construed by anyone to contradict the current views of the Government should immediately report to the proper authorities for reeducation.
3. The current views of the Government shall be published in a daily newspaper "The Truth". Should the views expressed in the later issue of the newspaper contradict those expressed in earlier issues, the later views take precedence.
4. Every proponent of a Government position, which has been changed in the later issue of "The Truth", automatically becomes a member of the opposition. There will be a grace period of 12 hours for such person to repent and to join the Glorious Majority again.
==========================
P.S. Please note that I don't offer any thoughts about preferable way to deal with the banking crisis. Neither does Candide.
March 26, 2009 4:14 PM | Reply | Permalink
So you finally figured it out, did you?
March 26, 2009 4:18 PM | Reply | Permalink
Actually I do have "thoughts about preferable way to deal with the banking crisis". Oh I don't know, how about the plans being offered by the guy we just elected the President? (Too democratic for you, right?)
March 26, 2009 4:25 PM | Reply | Permalink
That's not a thought, that's an echo (or Amen). Do you have anything of substance to say as to why is Geithner's plan good? Why do you think Krugman's objections (of this week, not of January) are wrong?
References to democracy don't cut it - e.g. we reelected Bush, remember?
March 26, 2009 4:57 PM | Reply | Permalink
How about, "we didn't elect Paul Krugman". How about Krugman is a columnist.
March 26, 2009 8:01 PM | Reply | Permalink
We didn't elect Krugman, therefore Krugman must shut up and follow the party line, right? On the other hand, 4 years ago we reelected Bush, so at that time Krugman and everyone else should have supported privatization of Social Security, because the democratically elected Government decided to do that, correct?
March 27, 2009 1:21 AM | Reply | Permalink
It's one thing for the party of smaller government to embrace more government involvement in insolvent banks than the Obama administration
This seems like a pretty big deal, actually. I thought Republicans were the party of small government. This plan isn't small government by any stretch.
If they seriously pursue this, don't they run the risk of Grover Norquist painting them as too liberal for real Republicans?
(Which I have no problem with, of course, but still....)
March 26, 2009 2:14 PM | Reply | Permalink
Yeah, that's the point, right? It seems to me they are simply out of their own ideas and just randomly jumping on whatever there is just to oppose the administration without being called the party of "No."
If they were truly serious about the idea (which deserves much more serious consideration), there would have been a great policy debate in Washington (dream on...).
March 26, 2009 3:30 PM | Reply | Permalink
Well, be careful what you wish for. Here in CA, those who aren't anti-government enough are primaried and booted out. They're replaced with Norquist Mini Mes.
March 26, 2009 6:13 PM | Reply | Permalink
Maybe piecemeal items from the budget will be introduced, but looking at the massive tax cut for the wealthy from 35 down to 25%, I gotta wonder what the heck are they thinking?
March 26, 2009 2:23 PM | Reply | Permalink
So of course, Cantor would vote for the very large amount of funding needed for nationalization. Right?
Yeah, riiiight.
Stick to watching Britney, Cantor. You're not fooling anybody.
March 26, 2009 2:26 PM | Reply | Permalink
It would require less funding than a bailout.
March 26, 2009 2:28 PM | Reply | Permalink
No it really wouldn't. We're talking trillions here. I believe Roubini estimated the amount at something a little over 2 trillion dollars in terms of toxic assets.
March 26, 2009 2:30 PM | Reply | Permalink
Yes, it really would.
A receivership approach does not involve the federal government paying the supposed value of the toxic assets. What happens is that the federal government takes control of insolvent institutions, paying nothing for them.
The government then unwinds the institutions, and the government decides how much the institution's creditors should get. Its like bankruptcy, except more controlled. The government could choose to honor the creditors debts above the amount available from the institutions' assets, but that would be a choice for the government.
March 26, 2009 2:44 PM | Reply | Permalink
Wait, so the government will then choose to selectively pay or not pay the obligations from these zombies? And how does that selective payout avoid charges of cronyism and corruption. Can creditors lobby to make sure they get paid? Can they donate to Obama at the same time as they wait for their money?
March 26, 2009 2:52 PM | Reply | Permalink
I would guess that the rules would follow those used in bank receiverships. I can't pretend to know much about how those rules work, but I suspect the amount that creditors get in a receivership bears some relation to the amount they would be entitled to receive in a Chapter 7 liquidation.
My point is that the government wouldn't be obligated to pay creditors more than the amount available from the insolvent institution's assets. (In a Chapter 7 liquidation, the bankruptcy court divides the insolvent institution's assets among the institution's creditors.)
The government could also choose to increase the pool of funds available for distribution to creditors with additional public funds, if the government thought that necessary to preserve the financial system. (When I say "government" here, I mean both the legislature and the administration working together; I'm not certainly what exactly is allowed under the proposed legislation and what would require additional legislation.)
March 26, 2009 3:08 PM | Reply | Permalink
But in a bank failure, we get all our money back, up to the limit. Who decides what the limit is here in the case of a CDS? Goldman gets nothing, while WAMU gets 50%? Or is it a flat percentage?
Did you watch Geithner this morning and see the catcalls of "socialism" over even granting the authority to take over any bank?
I just don't see this as a winner.
I actually agree with Sullivan on this. If this is such a winner for the investors and the banks, then have Vanguard and others open it up to all investors. That way, for everyone who thinks this is a giveaway to the buyers, they can put their money where their mouths are.
March 26, 2009 3:28 PM | Reply | Permalink
I assume that you are refering to individual investors' deposits being guaranteed by the FDIC up to $250K. Its certainly not true that everyone gets all their money back.
There is no FDIC guarantee for a credit default swap. As I see it, the counterparties are entitled to no more than they would get in a Chapter 7 liquidation, which would be pennies on the dollar if the institution's debts greatly outweigh its assets. If the government chooses to pay more, then it should be done pursuant to generally applicable rules to limit the sort of cronyism that you mention.
If the Republicans choose to attack their own plan as "socialism," I'll break out the popcorn and enjoy the show.
I assume that you've switched gears to the bailout plan that Geithner announced earlier this week. Using mutual funds like Vanguard to allow small investors to participate sounds like an interesting idea to me.
March 26, 2009 3:42 PM | Reply | Permalink
"The government could choose to honor the creditors debts above the amount available from the institutions' assets, but that would be a choice for the government."
But it's an option they couldn't avoid choosing. Factor in that cost and it could well become MORE expensive.
March 26, 2009 3:07 PM | Reply | Permalink
I suppose there's the potential that the government could choose to make this approach more expensive. I think the chances of that are fairly slim though. Under the current approach, the government seems to just be dumping public funds into these institutions. In a receivership, the government would have more control over the institution's assets and would have the ability to break contracts. That means that the government wouldn't have had to honor AIG's rentention bonuses, and far more importantly the government wouldn't have had to pay the counterparties at 100 cents on the dollar.
March 26, 2009 3:14 PM | Reply | Permalink
But we'd be on the hook for all the bank deposits. Citibank has something like $700 billion. Those are FDIC insured, folks. We'd wipe out Citi's $350 billion in bond holders etc. but still have to pay that $700 billion. And this is just one bank. Roubini is right. It will cost a couple trillion.
That doesn't mean it is a bad idea, just that I can't imagine the GOP agreeing to funding this.
March 26, 2009 3:43 PM | Reply | Permalink
I wasn't aware that the FDIC insurance applied to accounts in non-banks. That's news to me. Regardless, that's a wash. We are already on the hook for any accounts that are FDIC insured.
Can you provide me with a link to where Roubini wrote this? I'm curious to read his reasoning.
They've embraced it in their budget blueprint. See above.
March 26, 2009 4:06 PM | Reply | Permalink
But I think the whole idea of not putting all the banks into receivership is that the secondary effects of all the counterparties getting stiffed would be catastrophic. There's no way the government could avoid paying them off.
The thing to remember is that most what's being called "toxic assets" are not actually worthless. It's just that the market is broken and unable to properly assess their value. This is the crux of Gaithner's plan. Private parties (with government backing) will buy them up, hold them until the market recovers, then likely turn a profit. No one is willing to do that without the government backstopping them, but the likelihood is quite high that they will turn a profit, which is why a lot of private investors are lining up to participate.
March 26, 2009 4:02 PM | Reply | Permalink
I suspect you that you are correct that the government would choose to pay something to the counterparties to protect the global financial system. I doubt it would be 100 cents on the dollar, though, which is what they are currently getting. That's what makes a receivership less expensive than a bailout.
The Obama administration has certainly bought into the notion that the problem lies primarily with the market and not the assets. I take that with a grain of salt, though, when I see the enormous generosity of the subsidies that they consider necessary to "fix" the market. Regardless, I'm not clear how you feel that this point plays into the discussion of receiverships.
March 26, 2009 4:22 PM | Reply | Permalink
With the current bailout, the government gets an equity stake for its assistance, which can be redeemed later if the bank recovers and pays us back. It amounts to an unsecured loan. With a receivership, the government has no recourse to get any money back that it pays out to counterparties. What you're talking about is similar to the RTC cleanup of the S&L in the 1980's. The RTC cleanup cost the American taxpayers about $125B. The current crisis is MUCH bigger.
The question for comparison is how much of the money will we get back for our equity stake in the banks, and how does that compare with the costs for a receivership approach? No one really knows. Anyone who says they do is bullshitting.
March 26, 2009 4:41 PM | Reply | Permalink
The government could get the same equity benefits, if it wants, through a receivership approach simply by holding on to some of the entities that are spun off or by retaining an equity stake in them. The only real difference is that the government has more control in a receivership.
Perhaps the call for the receivership approach is an exercise in 20/20 hindsight. Bail outs make sense for institutions that are fundamentally solvent and just have temporary cashflow problems. Its now clear that AIG is not solvent (absent government intervention), but I suppose that wasn't so last fall.
March 26, 2009 5:17 PM | Reply | Permalink
"Its now clear that AIG is not solvent..."
That's not exactly true. Only the Financial Products division is FUBAR, but their liabilities are dragging down the whole company. AIG may actually be a good case for receivership, because the receiver could divest and close down the FP division, leaving the rest as a viable entity. There may well be others who should go to receivership, but I don't think it's necessarily the best course for all. It has to be handled on a case-by-case basis.
March 26, 2009 6:02 PM | Reply | Permalink
They are lining up to participate because they are getting free government money to make a bet in a casino. They win if they win and we lose if they lose.
Only a fool would not participate in a non recourse investment where you only have to put up 6% of the money and you get to keep all the profit and none of the losses.
The idea that people are lining up to do this does not mean these assets are worth anything.
I surmise that many are worth a great deal and many are worthless. The problem is not that the market is not pricing them correctly. The problem is that the information that one would need in order to price them correctly is not available. The banks didn't ask for this information in many cases. (sorry no link but probably from reading calculatedriskblog.com) What I have read is that things were so fast and loose that the folks doing the securitization did not even ask for the loan docs.
Now fast forward to 2009. The people who originated these loans are out of business or have been bought by others (see countrywide and bank of america). So what are the chances that the same banks that can't prove in bankruptcy court that they have the right to foreclose on a property could somehow magically come up with the paperwork from the origination of the loan that shows quite clearly that the people to whom the loan was made do not make the salary/have the assets that they said they had.
The chances are pretty slim. The assets that have prices now probably have prices because someone somewhere has the information from the loan originators. Maybe it is the folks that did the original mortgage backed deal. They probably have a feeling of how good or bad the deals they did are. They probably know the really bad ones at the top of the market should not be touched at anywhere near face value.
So we are going to give the people with inside information free non-recourse loans to gamble with the future stream of income to the treasury. That is just a brilliant idea if you are were an employee that used to do these securitizations who wants to start a new hedge fund.
March 26, 2009 11:42 PM | Reply | Permalink
It would be illuminating to see how many Democrats would be in their corner.
It most certainly would indeed. Not many, I would expect....too bad.
C
March 26, 2009 2:35 PM | Reply | Permalink
I trust, then, that this means the Republicans will wholeheartedly support the Obama Administration's proposed legislation to allow receiverships for non-bank financial institutions and bank holding companies. That's precisely what they now claim as their plan.
By the way, did someone forget to send Newt Gingrich the memo that this is now the Republican plan.
March 26, 2009 2:35 PM | Reply | Permalink
ENOUGH! with characterizing the Republican Party as the party of small government. They haven't truly been that since Goldwater and we all know how well that went. They are the party without direction whose only goal is to eliminate the middle class and give power only to old money. Oh, and criminalize abortions too. And, kill all criminals; with or without a trial... but only if those criminals are not from old money or are not white.... that's their party.
This position on taking large banks into receivership only shows their desperation. I happen to agree with the idea and hope they try to move forward with it and bring the liberal dems along with them. Heck, maybe the conservative dems would go for it too.
This is such an up is down world these days...
March 26, 2009 2:47 PM | Reply | Permalink
I disagree that this proposal is bigger government. When compared to endless bailouts with no end in sight, winding down these companies in a responsable way seems like a "smaller" solution to me.
It also gets the people who made these problems out of the board rooms of these companies so they can stop doing harm and simultaneously addresses moral hazard.
That is not big government to me.
March 26, 2009 3:17 PM | Reply | Permalink
This begs the question ... are the repuglicans really following Paul Krugman's preferred method and consultiong with him on the finer points?, or are they just using it as a facade pretending to encompass liberal economic ideology while still running at full speed towards the abyss?
March 26, 2009 3:24 PM | Reply | Permalink
This is a way for the Republicans to look more populist than they really are. They are using Krugman's talking points as a cudgel to beat the Democrats.
March 26, 2009 3:37 PM | Reply | Permalink
I assume that Cantor will vote for giving the Treasury the legal authority to take over "too big to fail" banks ie Citicorop and companies ie AIG.
They need to put up or shut up.
March 26, 2009 3:35 PM | Reply | Permalink
Did the Republicans push for receivership when they passed the first TARP and Bush was the president?
They are putting this out there only so they can appear to line up with the populist outcry. I hope Obama takes them up on it and puts BoA in receivership. Isn't Cantor getting campaign donations from the bail-out money for BoA?
March 26, 2009 3:35 PM | Reply | Permalink
I like this idea. It should only happen.
March 26, 2009 5:44 PM | Reply | Permalink
The key question is whether you keep the bondholders whole. The GOP was silent on that point. The only way this is a smaller government free market approach is if you are willing to force the bondholders to convert into equity just like bankruptcy. My guess is that no one in a position of power in their right mind would say this was their intent out lout. The GOP might be able to get away with it because their plan has no chance in hell of being implemented. But if anyone on Obama's team hinted at receivership, the financial world would go ape shit and the Dow would drop 1000 points instantly. That is what happened not too long ago when the nationalization rumors were flying around. DOW dropped over 500 in one day and lost at least 1000 in a week stretch (I think). Now, if someone were to press Cantor on this, it would be great. Would he really state outloud that he wants too big to fail institutions to fail? Is that really his position? I doubt it. the hedges will come fast and furious and you will find that they will not breathe on bondholders. Trust me on that.
March 26, 2009 3:43 PM | Reply | Permalink
Hedges would be so powerful right now, had the FED reserve not opened the discount window to them and a rate below 1%.
March 26, 2009 3:47 PM | Reply | Permalink
The Dow has already fallen so low that I'd say that horse has left the barn. I'm not afraid of further collapse, because it is already here. We're likely going to Dow 5000 due to low earnings in the coming year making the current P/e ratios too high. And even if it hurt the market in the short run, fixing the financial mess once and for all would be worth it.
I'd say the bondholders would have to get in line for whatever remains from the liquidation and asset sales. First in, first serve. Late comers might not get much.
Maritza is correct. Let's see if the GOP is willing to give the Fed, Treasury, or FDIC the authority to seize these companies.
March 26, 2009 3:48 PM | Reply | Permalink
I haven't read all the comments yet. But this strikes me as an attempt to pickup a ball the Democrats dropped. When the discussion began, someone let receivership be described as nationalization, so democrats ended painted with the socialist brush. Now funny thing republicans ride in and play capture the flag, by calling for receivership. With the aid of the MSM, they might pull this off, take credit for doing the right thing, then point their fingers at the democrats.
March 26, 2009 3:44 PM | Reply | Permalink
I think the point is that they have no idea what they are proposing. This is a big red herring. Lets see them actually put forward this as a legitimate proposal to be debated by Congress before taking them seriously. Lets see how much money they are willing to put up for this. The RTC had losses of about $120 billion on assets of $400 billion according to Wiki (no guarantee of accuracy) and Congress appropriated $104 billion. So, what kind of authorization would be needed for this current debacle?
The guy who keeps repeating that this won't cost taxpayers any money doesn't sound right. If the government arbitrarily takes over these companies, it will be responsible for all of their assets and debts. It could just break all the contracts or make the debt holders eat massive losses, but those losses will come from somewhere (rich people, hedge funds, pension funds, mutual funds, municipal bonds, insurance contracts, etc.) that will massively effect the entire global financial system. That would be the meltdown, Great Depression II, people are concerned about. If you don't think it will be that big a deal, good luck.
I'm in the military, so my job and life insurance will suddenly become a very important commodity as the world goes down the hole.
March 26, 2009 3:44 PM | Reply | Permalink
"The guy who keeps repeating that this won't cost taxpayers any money doesn't sound right. If the government arbitrarily takes over these companies, it will be responsible for all of their assets and debts."
Exactly! We'd need a ton of money, although I think we'll need a ton no matter what we do. I wonder how amenable the GOP would be to funding these bankruptcies.
There were 314 banks that took Tarp money. Not all are insolvent by any means. But what if 50 are. Citi is only one bank but check out these figures:
Citibank:
$700 Billion in deposits
$350 Billion in long term debt
$1 Trillion in other liabilities
Assets: $2 Trillion on paper (we know how good these are....)
The way I understand this would work is: FDIC insures all $700 billion, but if there's no run on the bank, we'd not need to actually have all of it. The sale of assets and liquidation will result in a pile of cash which gets distributed to bond holders and others in terms of priority.
Check out this, if only for the figures on Citi:
http://www.mercatus.org/uploadedFiles/Mercatus/Events/CHC_FMWG_III_Jones_PP.pdf
March 26, 2009 3:56 PM | Reply | Permalink
THOSE are the reasons why nationalization / cleanup/ piecemeal reprivatization is better than bailouts.
March 26, 2009 4:16 PM | Reply | Permalink
"More importantly, the breakup of "too big to fail" institutions so that they can never hold a gun to our heads again. "
I agree with you here. These are bad businesses and bad management. We'd be better with them gone.
March 26, 2009 4:20 PM | Reply | Permalink
I'm with the guy who mentioned forcing the bondholders to eat it. There is absolutely no way they would accept that. This is all a game of political football. They are playing with the word receivership and bankruptcy because they no people won't understand what it means. Let someone actually challenge and question them in the open and you will get a load of nothing.
They are playing a game, people!!! They have no intention of serious governing!
March 26, 2009 3:49 PM | Reply | Permalink
Okay, show of hands. How many of you people are aware that the plan Krugman is advocating is to take over the banks, wipe out the shareholder equity and then pay anyone the bank owes money to--bondholders, depositors, vendors, whoever, the whole bunch--100 cents on the dollar?
See now why maybe the Republicans would be glomming on to that plan?
March 26, 2009 5:16 PM | Reply | Permalink
That's going to happen either way. So please read my comment just above.
March 26, 2009 6:31 PM | Reply | Permalink
It's a mystery. I can't imagine a SINGLE republican voting for these expensive nationalizations. So I guess the answer is they are lying.
I really wonder why bondholders have to get paid in full tho. Deposits are insured by FDIC, but bonds and debt are only backed by the good name of the corporation.
In a normal bankruptcy, you sell all the assets and then take a big pile of cash, and divy it up or in terms of priority. IF there's none left for the folks at the end of the line, too bad. We all take risks in our investments, and just about everyone has been hurt in some way. Why should this group of people have some kind of guarantee? They invested in a crappy business that failed. Next time, invest more wisely. I know, there are political aspects of who these bondholders are, etc, but I still think it is unfair.
March 26, 2009 11:39 PM | Reply | Permalink
Meaningless spin, as it all gets sucked down the drain.
March 26, 2009 5:27 PM | Reply | Permalink
The Republicans are calling for nationalization because, over the past month, it's been a tool to use to discredit the administration. But they'll weasel out of the this game when (and if) the time comes for them to really sign on.
I mean, remember all the Republican noise about AIG bonuses? But they somehow didn't come on board when it came time to vote on the bonus tax in the House.
So, this is all a hatchet job, and a great many progressives (witness Krugman) are unwittingly playing into it.
Warning: don't feed the animals.
March 26, 2009 5:35 PM | Reply | Permalink
I agree that PK is playing into it. He's on the TV every time I look. Where was this guy in November? I didn't see him on every freakin tv show to diss the government plan.
Also agreed: The GOP are a bunch of liars. Don't turn your back on these cretins for a second.
March 26, 2009 11:31 PM | Reply | Permalink
It reminds me of Roosevelt telling Democrats during the 30's that if they wanted him to implement New Deal programs they had to "make him do it" for political cover. So now if it comes to nationalization under Obama's plan, the R's have no political cover and Obama has all the capital he needs.
March 26, 2009 6:05 PM | Reply | Permalink
But, he will still need Congress to appropriate more than $1 trillion for nationalization. Currently, there is no stomach for this. Maybe, Geithner's plan will make this necessary as all other options will have been taken. Or, maybe his plan will work as presented. I'm with Roubini on this, but I am a lot more patient than some. "Getting it over" or "letting them fail" might seem like it will end the pain faster, but what will that pain look like? 25% unemployment for a few years? Who knows?
March 26, 2009 7:35 PM | Reply | Permalink
I disagree with Krugman on how the RTC handled the S & L's. The RTC basically did for the S & L's what the FDIC does in the banks. The only thing that they did different was that they took a bit more time in disposing of the assets that the buyer of the S & L didn't take. They didn't anymore fix a S & L and resale it than current FDIC practice. My firm made a lot of money buying asset pools from the RTC, cleaning up easily fixable issues, selling those loans and then dumping the bum loans. The RTC insisted on bundling bad loans with good loans into blended pools. You could low ball purchase the pools break them up and make a killing.
March 26, 2009 9:37 PM | Reply | Permalink
Here's a nice little snippet from Mr. Krugman's background that most people tend to forget.
Prior to his appointment at Princeton, Krugman served on the faculty of MIT ; his last post was Ford International Professor of Economics. He also taught at Yale and Stanford Universities, and prior to that he was the senior international economist for the President’s Council of Economic Advisers, under Ronald Reagan. (Yes, he served under a conservative President.)
That's right Paul Krugman was responsible for REAGANOMICS ALONG WITH ONE MR. PAUL VOLKER.
This isn't the first time he's agreed with a silly little Republigcant!
When President Obama said "Well who's willing to come in and fix this mess" Volker, Summers and Geithner Stepped forward! Krugman wanted Treasury and Papa Volker said NO! Something about not being able to keep his mouth shut, if you know what I mean. RFOLOL
March 26, 2009 11:30 PM | Reply | Permalink
He also applied for a job with the Clinton admin. Not all that leftist, more centrist. Perhaps that is why he was so pissed that Obama upset Clinton. His anti-Obama tone started right around the early primaries.
March 27, 2009 12:08 AM | Reply | Permalink
There is a political science term for posts like these. They are called lies. Blatant one too, because it takes about 3 minutes with a search engine to learn the facts.
Krugman, father of Reaganomics: http://www.pkarchive.org/personal/SmallCorrection.html
Krugman wanted Treasury: http://krugman.blogs.nytimes.com/2008/11/26/about-that-advisory-board/
People, Obama is in power for just over 2 months - a bit early for full blown witch hunts, don't you think?
March 27, 2009 1:43 AM | Reply | Permalink
The Krugman-Obama spat has been going on since December 2007.
And Krugman did apply for a job with Clinton admin, and has admitted so. Perhaps a reason for the animus. But not so lefty after all.
More like an attention whore. And one who is falling into the same trap that Dowd, Rich and others fell into during Clinton: Bash the Dem president *harder* as if to prove your objectivity. This is the kind of trap the GOP loves, when the press and pundits, who mostly cowered before Bush, now suddenly want to show how tough they are.
March 27, 2009 8:40 AM | Reply | Permalink
I may be overestimating Cantor here, but it seems like it might be a good political move. The Geithner plan will not rescue the banks, and the Obama Administration will need to do an FDIC receivership approach anyway. When it comes to that, the Republicans will be able to say "We told you so. And look how much money you wasted before figuring it out." Both Geithner and Obama are on record saying that a "Swedish solution" is the wrong route for the country. It is argued that they had to say that, to do otherwise could destabilize things, but nveretheless, they said it. So if, after PPIF, they are forced to embrace FDIC-style nationalization, they will look like they have flipflopped to the tune of a trillion or more.
Talk me down.
March 27, 2009 2:14 AM | Reply | Permalink
That's exactly what Elana Schor is saying in the late update to the original post, except that her correspondent thinks that
I agree with her about the people, but IMHO you're closer to the truth regarding the political effect of such eventuality on the AdministrationMarch 27, 2009 2:47 AM | Reply | Permalink