The Stakes (Or why they call Economics the Dismal Science)

[TayTay]

William Greider had a column in http://www.washingtonpost.com/wp-dyn/content/article/2009/03/19/AR2009031902511_pf.html">yesterday's Washington Post. I have been reading Mr. Greider's stuff since, well, since the 80's at least. He predicted the Dems would lose big in 1994 and spelled out how the Party of the People had forgotten how to communicate to The People. He was right then and this new column is well worth your time to read. He talks about exactly what President Obama is facing and the various interest groups that are clamoring for his attention and what has changed over the last 9 months:

What's changed the president's situation? During the past nine months, gigantic financial bailouts amid collapsing economic life made visible the crippling divide between governing elites and citizens at large. People everywhere learned a blunt lesson about power, who has it and who doesn't. They watched Washington rush to rescue the very financial interests that caused the catastrophe. They learned that government has plenty of money to spend when the right people want it. "Where's my bailout," became the rueful punch line at lunch counters and construction sites nationwide. Then to deepen the insult, people watched as establishment forces re-launched their campaign for "entitlement reform" -- a euphemism for whacking Social Security benefits, Medicare and Medicaid.

The fight over what happens to that bailout money is important. This is a fight worth having, even though it is also upsetting. We want vigorous debate, we want the issues explored, we want to hear from the Paul Krugman's and other economists who are trying to shout some alarms. This new President has to make some fundamental choices that will affect the entire rest of his term and how the people regard him. What side is he on? That is the fairest question that can be asked of any public official and a question that should be answered. (By all elected public officials. That seems to be a basic requirement of the job.)

I could not agree more with the last line of this article:

People are angry, but they want this president to succeed. Mobilized citizens can help him to prevail. If he goes with the other side, they will bring him down.

Differences of opinion do not mean a loss of hope. They mean a difference of opinion on something that is extraordinarily important. I want and desperately need for this President to succeed.

[beachmom]

1. Thanks. One quick comment:

I just don't view it that the Power Elite Government gave bailout money to the Power Elite because it is some kind of Power Elite thing. We saw what happened when Lehman Brothers failed. Sorry, I don't want to see that again. Millions of jobs were lost on account of that event. So my view is that bailing out the big guys is actually to get the financial system first stable and then flowing in order for the little guys to be able to find and keep jobs. Now I would like to see more safety nets put into place, but there are actually little guys who DO worry about the deficit, and one has to wonder how long China will keep buying our T bills.

So I don't see the Us vs. Them. Populism is not wired into me. I view each situation individually. I thought the AIG employees were self entitled jerks, but I don't view everyone involved in those financial institutions that way. I do agree with Obama that they need to get out of New York more often though.


Edit: he goes on to talk about regulatory reform and that the Fed is not the best place for that. That is more the kind of discourse I "get".

[MarjorieG]

3. Thanks, you just said it shorter and better than me, as usual.

[MarjorieG]

2. There is more gray in this, and how do we get the private sector to buy these assets.

If we try to dismantle, nationalize, takeover the huge AIGs, Citigroups, etc, we begin making alot of people we need cooperating unhappy, like foreign governments who own a big piece of us and who we trade with. We take over the banks in a long process that precludes doing anything else while we figure it out.

We've some done testing, but letting Geithner's plan play out and doing more testing, saves some of the banks. We need the people we're mad at. I'm not ready to pronounce the best they consider of bad choices wrong yet, before trying.

I'm always right on with the social critics, but how is Obama going to manage this massive business of the government, reregulate, and finance the issues we elected him on. If the markets finesse this, maybe not disclosing everything, playing some games, we still get some upside numbers and time to do other things.

What is so wrong with seeing this work, tweaking the plan, emphasizing over and over how we got here and for how long, the systemic problems, and laying off the AIG furor, and as if it's all Obama's fault. He is trying to plug in relief, some of it dissed by the lobbied Congress people; we need to understand and explain the tightrope. A lot of the bailout problem was created by Bush, as well as the rest of the problem

I'm more worried we won't get a public side to go along with a private side of health insurance, but we won't get anything if we feed the anger, and further the class war. Obama wants a quieter, more pragmatic revolution, and was the reason many of us voted for him.

Just because the media sees their job of stoking outrage, or with the more thoughtful ones who feel ethically compelled to say their truth, we still have to be more tempered.

I've spent a long life trying to rely on, involved with mobilizing citizens. However, when angry, they're not a reliable bet. Ending wars, for starters. I've seen many an effort to enrage irresponsibily, without little truths, even in defending Kerry, where the ends were to justify their means.

I, for one, am not a Krugman fan, and his ivory tower, political tin ear. His latest was all negative, all damning, all hopeless. Give me Robert Reich.

I'm really ready to leave DU, almost all blogs of very well-meaning people, because it's really unhelpful.

Sorry for the rant, and if it seems silly and ill-informed. I'm like many of us that way, I guess.

[TayTay]

4. Neither silly or uninformed

We need to talk to each other. (And hey, still, as far as I know, no one died and made me Queen of the Freakin Universe. I am trying to figure this all out like everyone else. Apologies, under such circumstances, are not needed.)

None of us know exactly what is going on. I think that the national government has leaned too far to the side of Big Business over the last near 30 years or more. That is where, intellectually and ideologically, I come from. It is a part of my belief structure. I don't see the current struggle as a new class war, I see it as the next chapter in one that has been going on for a long time.

We exchange ideas in here because we want to test out our thinking with people we respect. The exchange of ideas is healthy. I like Paul Krugman, but I see Krugman and Reich as pretty much in agreement on this. (Reich has this amazing slide show that shows the enormous gulf in incomes between the upper 5% and the rest of Americans. It's an eye-opener.)

And I don't trust the bankers. I think they did their part to get us into this mess and I see no contrition from them. And yes, I want to see that pain and contrition. I honestly do.

[beachmom]

5. "Where you come from" is important, beliefs-wise.

I am Gen X, grew up under the Reagan Revolution, where it seemed things got much better -- no gas lines, out of a recession, no hostages taken etc. My main problem with the GOP back then was their foreign policy a la Iran/Contra and so forth. I also thought we should help the least among us, and not put them down.

But the structural stuff you are talking about, I just am not there. Well, maybe I am there now (because of the foolish deregulation of commodities markets and Finance), but it is relatively new.

Oh, and one of the main economic reasons I was opposed to the GOP was because they always ran up deficits. I just think that apart from recessions where deficit spending is needed, I think the federal government should balance its budget. So ... we need to either cut spending or raise taxes or a combination of the two. Entitlements represent a huge proportion of the budget, and to say that we should take a look at them is not a betrayal of working people. Maybe we will end up raising the wealthy's tax on SS. I don't know. But it should be on the table. And by the way, John Kerry has always stood for fiscal responsibility, and it was part of the reason I liked him.

Paul Krugman was wrong with his discussion of social security acting like the shortfall to come was no big deal -- yes it is, as is the shortfall in Medicare.

[MarjorieG]

10. I'm a 60s teen, JFK follower, but never far from pragmatism.

I'm trying hard to see where the anger and dissing people who we owe and need will get us anywhere (like Europe), as you said. Maybe that's too big picture for many wanting their pound of flesh, and those always wanting the revolution that never happens.

Obama is in a tough place for someone who wants to be as progressive as possible, and thinks it's still affordable by the unpopular raising taxes. He is a fiscal discipline kinda guy, with that personal history that informs, as you say, leading us through a crisis needing stimulus spending and taxes.

Since the GOP always runs up debts and we clean it up, rather than anything about health care, "they kick the can down the road" and the cycle continues.

(our JFK!)

[MarjorieG]

6. I agree with the imbalance, and acknowledging it feels good, but then what?

We don't have tools to personally rebound. I'm hoping the regulations will help, but I'm not naive to think the selfishness will end with some grand ephiphany on the mount.

My hubby has been covering business news for four decades, as long as I've known him, and he's the first to be wary and distrustful. Many in regional newspapers, winning awards, so on the side of the little guy back in '81 with a long series "Wall Street Casino: Gambling with Someone Else's Money." Now happy to be employed at 67 doing just the facts on public/private partnerships, etc, with Latin American infrastructure (or how they're all be stopping). Look for China and more coal industry.

I'm feeling that Obama wants to protect and curb the practices more than those in Congress, which didn't like the bankruptcy relief court, or taxing he wealthier for $300+ billion for health care, and more. Campaign dollars at work.

I'm frustrated not that Obama doesn't get it, but what he can't do anything about it. I also wish people knew about constructive anger, as he said.

[beachmom]

7. Congress, including the Senator for which this forum is named.

I am still smarting by John Kerry's inability to understand that Hedge Fund managers should pay the same tax rate as the rest of us. Meanwhile, Obama has already proposed that the Hedge Fund Managers have their taxes raised (it is currently 15%). And we don't even know how the Senator will vote on it given his very wrong stance on it before.

Also, will Senator Kerry be voting for the 90% tax hike on AIG bonuses? I think he should vote no, because it's a bad, possibly unconstitutional bill. I am far more offended by the Hedge Fund managers paying so little taxes than I am about the AIG bonuses. It is under the radar now, but the good Senator from Mass. should be warned that the populist fury will glomb onto whatever the media decides to play up next.

[ProSense]

8. The public wants Congress to do whatever it takes to get the bonuses back and the tax

is not unconstitutional.

[wisteria]

12. It seems the administration does not support the tax idea.

Is this good or bad? Personally, unless Obama has another idea to recoup this money, he may be heading for trouble not supporting it.


"Obama implies rejection of House bonus tax plan"

http://www.google.com/hostednews/ap/article/ALeqM5jUtOqjn-Gmqh0fIoTp_GZIOAVVEwD973C63G0

Of course, as always consider the media source.

[MarjorieG]

14. He indicated on 60 Minutes tax as punishment, targeting small groups not good.

Also, I think, we need to play better ball with Wall Street if they are to be in partnership over toxic assets. Like holding us hostage, as Obama has said.

More than Stockholm Syndrome, I don't think we have a choice.

We need to find better ways to get satisfaction over this. I do think there is criminality with bigger fish we need to investigate. Just like other world compromising Bush disasters.

[ProSense]

15. He expressed concern about the Constitutionality, but

did say he'd have to look at it closely.

The law is clearly Constitutional.

[beachmom]

22. Prosense -- I just saw a headline on MSNBC that the Senate is tabling the bill.

Also, the "shaming" is working. I think we had a discussion about public shaming maybe a year ago, when there was a public shaming in Georgia of rich people who used unbelievable amounts of water (one guy used 400K gallons of water in one month). Some here expressed discomfort with shaming. I am for it in extreme circumstances. Bottom line, the water abusers cleaned up their act. It worked. Now with the bonuses, Cuomo is doing a threat of public shaming and now a bunch of people have given their full bonus back.

I would prefer to solve the problem that way, then pass a weird law that targets a small group of people for taxation. However, I love that a bunch of Republicans voted for a 90% tax in the House. That is rich.

[ProSense]

35. "Also, the "shaming" is working." I don't buy that for a second

Bernanke wanted to sue AIG

Federal Reserve Chairman Ben Bernanke wanted to sue AIG to stop the company from handing out hundreds of millions in bonus payments over the past two weeks.

But Federal Reserve lawyers advised against litigation, fearing the bank would lose the suit and allow AIG to recoup huge punitive damages. Bernanke also said the Fed knew about the bonuses last fall and warned AIG management it had “deep concern” about the payouts.

“Legal action could thus have the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees,” Bernanke told the House Financial Services Committee Tuesday morning.

AIG told the Federal Reserve that the bonus payments were mandated by binding contracts, even those to its financial products division, which was responsible for creating the credit default swaps that contributed to the current economic crisis.

“My reaction upon becoming aware of these specific payments was that, notwithstanding the business purposes that might be served by this action, it was highly inappropriate to pay substantial bonuses to employees of the division that had bee the primary source of AIG’s collapse,” Bernanke told the committee.

Fifteen of the top 20 employees at AIG who received bonuses have agreed to give them back — a refund that totals about $50 million — New York Attorney General Andrew Cuomo annouced Monday.

link

Polls: Public Really Doesn't Like AIG

[MarjorieG]

13. This is part of the hostage Obama talks about. To get them to invest in assets, when they are

distrustful of doing business with them. Seeing 'mistreatment' of Liddy, faux outrage by Congress who should have known better in the first place. We should have understood about the bonuses, but the culture has been changing before our eyes, about contracts signed onto last Fall. Retroactive anger?

We can say we don't trust them, don't like them, they need a spiritual overhaul, but we need them to invest in the toxic assets, markets-with regulations.

Just because the media found something to pin the administration on, something they understand about the arcane economy, stoking it, are we saying that we need to tax something that sends a bad signal about law, tax as punishment? That may be a convenient way out, but I still think true. Getting back bonuses another way without rage is not punitive enough? Preventing more bad bonuses not enough?

It's the whole enchilada, the excesses of Cassano, is what I would like laid out and maybe decided if illegal. A lot of it isn't, unfortunately.

[beachmom]

23. I have read other opinions that say it is unconstitutional.

That is above my pay scale to make conclusions on, but I just don't like the way the bill was hastily put together, and it targeting a small group of people. It makes me queasy.

[wisteria]

9. I also want to see him succeed for the sake of this country and all Americans.

The future is on the line.

[ProSense]

11. "Differences of opinion do not mean a loss of hope."

Krugman is laying on the despair pretty thick.

[TayTay]

16. Yes it does, and that loss of hope can cut both ways.

I am now hearing that the President is being pressured to drop health care reform from his agenda. I do not agree with this bank bailout, I think it is too much risk exposure for tax payers with almost no way for the taxpayers to get their money back. If this President drops energy and environmental concerns and health care and has as his major achievement a bailout of the banks, then my regard for him drops accordingly.

And I think that the investment tax should top out at the highest rates, as other income does. Period. This is what is needed and I think this tax reform is long overdue.

In a democracy, the President serves the people. The people are not here to serve the President. He gets the respect and accolades he has earned by his advocacy for the people. That is the democratic way. Dissent is an important part of the process. It is how citizens interact with their government. I feel that, should this bailout and loans, which might end up totaling $8 trillion dollars, be the prime focus of this Admin, then I will feel as though the voice of the people has not been given it's due.

[ProSense]

17. You could be right, but

the thing is that the drumbeat on the left is that the plan sucks and nationalization is the only solution. I don't believe the solution is all that clear. There are finally more objective analyses of the plan coming from its critics.

Here is an interesting comparison.

Nationalization is the best way to clean up the banks, but I'm not convinced that people know how it would work or how big the resulting losses could be.

[TayTay]

18. I actually agree with Jerome a Paris at DKos on the real problem

And he wrote an http://www.dailykos.com/storyonly/2009/3/23/712012/-Sigh...-the-biggest-problem-is-not-(toxic)-bank-assets">excellent diary today that lays out the real problem. The "toxic assets" of the banks are not the real problem. I think the real problem is paying off the trillions in insurance made against those mortgage backed securities failing. And there isn't enough money in the world to pay off those debts.

I further agree with Jerome that the insurance on the cds bets made here should be voided. This is the real problem. The diddling around with the toxic assets won't help anything. The drain of money from working people and taxpayers to a tiny elite will accelerate and everyone loses until we address this problem.

There is a tiny group of people who made this problem and who are profiting from it even now. Stop that from happening. Cancel these things before they cancel out everything else. I think the bank bailout today is inadequate and will harm the ability to move forward on all the other things Obama was elected to do. I honestly do. I agree with Paul Krugman and with Jerome here. I do not see why we continue to spend our precious dollars on those who created this crisis. Let them, for a change, eat cake.

[ProSense]

20. The problem with all of this is

that it's still not clear. Here is a plan that attempts to nationalize not based on toxic assets. It's complex, potentially costly and uncertain.

Krugman just linked to a piece that he says matches his example. I went to the link and one of the comments there struck me:

if you are going to use numbers, please use numbers that are reasonable.

the numbers you have chosen (50% chance of being worth zero and 50% chance of being worth 100) are cooked up to maximize public losses and maximize private gains. in reality, no pool of loans is going to be worth zero and no pool is going to be worth 100, and in reality the bids are going to track the final values at least a little bit.

there’s no doubt that this is intended as a subsidy and the most likely case is that it is a subsidy.

however, what we are paying for here (if we are paying for anything) is some clarity about marks. if the marks are really that bad (pools of loans marked at 50 but they could be 0 or 100) then we are going to pay for that clarity one way or another.

It would help if those proposing nationalization outline a plan with numbers as realistic as they can get them to show the feasibility of nationalizing large institutions like Citi.

[TayTay]

21. I think the original post has good numbers

http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/">Geithner plan arithmetic

Leave on one side the question of whether the Geither plan is a good idea or not. One thing is clearly false in the way it’s being presented: administration officials keep saying that there’s no subsidy involved, that investors would share in the downside. That’s just wrong. Why? Because of the non-recourse loans, which reportedly will finance 85 percent of the asset purchases.

Let me offer a numerical example. Suppose that there’s an asset with an uncertain value: there’s an equal chance that it will be worth either 150 or 50. So the expected value is 100.

But suppose that I can buy this asset with a nonrecourse loan equal to 85 percent of the purchase price. How much would I be willing to pay for the asset?

The answer is, slightly over 130. Why? All I have to put up is 15 percent of the price — 19.5, if the asset costs 130. That’s the most I can lose. On the other hand, if the asset turns out to be worth 150, I gain 20. So it’s a good deal for me.

Notice that the government equity stake doesn’t matter — the calculation is the same whether private investors put up all or only part of the equity. It’s the loan that provides the subsidy.

And in this example it’s a large subsidy — 30 percent.

The only way to argue that the subsidy is small is to claim that there’s very little chance that assets purchased under the scheme will lose as much as 15 percent of their purchase price. Given what’s happened over the past 2 years, is that a reasonable assertion?

Update: Another way to say this is that by financing a large part of the purchase with a non-recourse loan, the government is in effect giving investors a put option to sweeten the deal.

[beachmom]

25. Okay, stupid question (one Jon Stewart asked): if the toxic assets don't fail

anymore because they are bought up by Hedge Fund managers, doesn't that mean that the CDS insurance does NOT need to kick in? After all, the credit default swap is an insurance paid against CDO's IN CASE they fail. If that problem is fixed, why would AIG or any other CDS issuar have to pay?

That New York Times reporter said they are working on that, and when the process is done, the CDS's don't need to be paid anymore. No "hurricane", no payout.

[wisteria]

19. Maybe this will improve your spirits, Senator Kennedy is back in Washington

to work on health care reform and is expected to stay about two weeks.

http://www.politico.com/news/stories/0309/20373.html

[beachmom]

24. If he drops health care reform, he is finished.

I am less liberal/lefty/whatever you want to call it, but I demand our health care system be reformed.

Krugman is really no help in this regard, too. He is screaming about the bank plan, well, then when he screams about health care, no one will listen.

[MarjorieG]

30. Already screamed during primaries, hating O's plan, wanting Hillary's mandates, a direction they're

going in, I read. Frustrating the sniping power he has.

[beachmom]

26. So you are against the bank bailout? Because before the bailout

we had Lehman Brothers. And my question to those opposed to bailing out the banks: can you stomach another financial panic and millions of more jobs lost in the name of economic justice, fairness, and all that good stuff? I simply cannot.

I don't see why Obama has to drop his agenda. I hope your sources are wrong.

[Mass]

27. I agree totally with it too. We need to be mobilized because the other side will be.

One of the problems that has bothered me from the beginning, but for which I was (and still am) ready to give Obama the benefit of the doubt, is that it seems alternate Democrats views are not represented in the government circles, and therefore these views will not be heard. This may also be why they are getting more strident than some think is necessary: they need to be heard. It is the case in foreign policy. I am not sure I agree with Chaz Freeman in half of what he said, but it is clear he was an alternate voice that needed to be heard. Same thing with finances. Most of the voices that are here have been trained by Bob Rubin. Where are the voices of Bob Reich, or of those who predicted years ago that this fiasco would happen. Nowhere to be heard. The people in the financial team represent the view of the banks. Who represent ours?

I think these are these ideas, in addition to the fact that the moderates continue to be way too important and too resolute to do very little, that makes me worry.

We need this team to succeed, but how is also important. A bailout as it stands now, with the same people who failed being able to continue operating these banks with nearly no strings attached is hard to swallow. Of course, we cannot allow them to fail because there are way too many people who would lose their jobs and who are not responsible from the current mess. However, right now, is it not what is happening: those who screwed up are still in place, and those at the bottom of the scale are being fired in order to lower the costs?

This is why I am so queazy about the bailout: we need something, but do we need this?

[MarjorieG]

29. I have no problem with perfect, with progressive priorities and Reich my hero, but what to do now,

with so many unknowns, not really wanting to dismantle capitalism and no choice anyway. Seems like every suggestion has downsides that particular view wants to de-emphasize.

Academics aren't always good measures of the possible and keeping a government working, but I'm more than disheartened, not sure whether personal views aren't clouding real opportunity with Geithner's plan, should it reaally work to some degree. I know the academics will not ind it having worked, because originally against. There's a vanity there.

I know Obama wants a new authority now to be able to intervene in AIGs when risk perceived, more than in just simple banks, but what were the limits before?

I'm willing to give a bad situation time, although every NYT negative story about the bank crisis, probably Krugman inflicted, when I know they prop up those interests otherwise (Bloomberg), is not helping and is selective criticism, considering pass given Bush, etc., for a very long time.

True that Baucus will pass on the public portion of health care, and defer to Grassley, letting him take the heat for "bi-partisan" health care? How do we get public, even if not single-payer, altogether and impossible.

Feel our crisis and Congress are badly and conveniently crippling our possibilities.

[beachmom]

28. Nuts! (reference to WWII):

http://www.portfolio.com/business-news/portfolio/2009/03/23/TARP-Helps-Banks-for-Rich?page=2#page=2

Okay, these MF banks need to give the MF money back ASAP.

This is not good:

http://online.wsj.com/article/SB123785266231219605.html

[TayTay]

31. This is just bailing out the rich

That is who is getting the money. The taxpayers are getting the shaft.

[beachmom]

36. Well, certainly for those "private banks". Not all of the bailout money.

Some of it is for stabilization.

I think the problem is there really is "Good bailout money" and "Bad bailout money", and they are being conflated. I didn't know that Northern Trust was a bank for the rich. Clearly, they should not have been given anything -- remember, though, that that was on Paulson's watch.

[Mass]

32. This article describes what is wrong and why more and more people oppose the bailout.

There are no real guidelines about how this money will be used. They are just giving the money to those who are responsible for this mess in the first place.

At the same time, there is no money to help those who have lost their job or do not have healthcare.

[wisteria]

33. Well there is the $25.00 more a week for the unemployed and the

extension of unemployment and COBRA benefits for those out of work. Then, there is the help for struggling homeowners which indirectly helps other homeowners in a neighborhood maintain the current value of their homes. However, these are just small helping hands. As I understand it, we have to take care of the market first in order for the consumer to get some relief, however,I agree their needs to be more accountability on this taxpayer money being handed out.

[wisteria]

34. It appears the Monday rally of Wall Street was all manipulation

if one can believe what is said in the WSJ.

[beachmom]

37. Interesting take on the Geithner plan from the Financial Times Economic Forum:

http://blogs.ft.com/economistsforum/2009/03/treasury-rewards-waiting/

Judging from preliminary details, the US Treasury’s plan to rescue the financial system is a lot savvier about the relationship between financial markets and the macroeconomy than are the usual-suspects: critics from both left and right who are already pouncing on the Geithner plan.

Unlike the critics, the Treasury has absorbed the main lesson from the past 30 years of academic finance research: asset price movements mainly reflect changes in investors’ collective attitude toward risk.

Warning: this is a fairly technical discussion of risk, fear vs. greed, and how the market behaves.

Which brings us back to the Treasury’s plan. The details flow from an overarching view that the markets for the “toxic assets” that are corroding banks’ balance sheets have shut down in part because in those markets the degree of risk aversion has become not just problematic but pathological. The different parts of the plan reflect different approaches to trying to coax private investors back into the market by reducing their perceived degree of risk to levels that even a skittish risk-shy hedge fund manager might find tempting.

The government and the private investor would be partners in a Buffett-like arrangement in which the assets would be held long enough that the investors can expect to receive payments that have justified the waiting.

This motivation sounds suspiciously like some of the arguments for the ill-fated Paulson TARP plan from last autumn; but the problem with the Paulson plan was never fundamentally with the idea that there were
problems in the market for toxic assets, but with the idea that the right way to fix that problem (and everything else wrong with the economy!) was simply to have the government drastically overpay to buy up the toxic assets from whoever was foolish enough to have ended up holding them. (Maybe this is not really what Secretary Paulson had in mind, but it seems the most sensible interpretation). Instead, the new plan from the Treasury gives private investors (who know more than Treasury about the likely payoffs of these securities) the pivotal role in competing to set the prices of the securities, via a competitive auction process.

The private investors currently on the sidelines are not fools and have no incentive to lose money on the deal. In addition, there is no pretense now (as there was last autumn) that the resolution of the toxic assets problem is the sole remedy for our economic woes; it is part of a carefully conceived plan including the stimulus bill, the housing foreclosure mitigation plan, the TALF plan for reviving the market for securitised assets, the bank “stress tests” designed to triage the good banks, the salvageable banks, and the zombie banks; and a host of other measures designed to address other aspects of the crisis.

It ends:

When fuller details emerge, it would be useful if the economics profession and the financial community could have a mature conversation about whether the plan could be improved before it goes into operation. For example, it may be necessary to make any bank that participates agree to the sale of all their toxic assets, to prevent the kind of cherry picking that has contributed to the shutdown of these markets so far. And there is good reason to be very careful to minimize the possibility of “heads-I-win, tails-the-government-loses” kinds of bets.

But broad-brush denunciations are unhelpful, whether they derive from preconceived prejudices of the left (which needs to recognise the important distinction between the greedy people who got us here and the wise captains of finance who can help us get out), or the right (which espouses a destructive ideology according to which all government action of any kind is a mistake).

I feel like there are two arguments going on in this discussion threader:

1. Whether the plan will work
2. Whether there should be a plan

For me, it is inconceivable not to go forward with Bailout Hell. We do not have a choice. What is now a recession will turn into a depression if all of these financial institutions are allowed to fail. And I just feel like Krugman and friends are ideologically opposed to the plan, therefore being biased as to whether it will work or not. I like the above author's views, which is that academics and the finance people need to have a more mature conversation.

Krugman vs. Anti-Krugman is kind of interesting (Mass brought it up as a bizarre phenomenon that emerged on Sunday). I actually think it is not really about Krugman, the man, but more the ideologues vs. the pragmatists. I am on the pragmatist side. And seriously, it would be political suicide for Obama to drop health care reform. I have no doubt there are mealy mouthed Democratic Establishment types telling him he can't do it; but Obama is a pretty politically savvy guy. He will tell them where to go in a charming manner, I am sure.

[Mass]

38. Here is the interview he gave to Bill Moyers

http://www.pbs.org/moyers/journal/03272009/watch2.html

as well as an essay by Simon Johnson and a few graphs that explains the origins of the crisis, if you have not seen it earlier.

http://www.theatlantic.com/doc/200905/imf-advice (It is long, but really worth reading)

As well as these two diagrams that show to what point the finance industry became way too big and show the need to structural reforms as well as cosmetic ones.