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Obama And The Banks

Treasury Secretary Geithner and the Obama administration are claiming that taxpayers will be adequately protected in the new bank bailout scheme they are peddling on Capitol Hill today. However, John Carney at Clusterstock says that "the Obama administration either doesn't understand (the plan) or is lying about it." Cynics would claim that President Obama and his Treasury Secretary not only understand the plan but are lying about it also.

Criticism of the Public/Private (PPIF) partnership proposal is truly bipartisan. Two very liberal Nobel Laureates, Paul Krugman and Joseph Stiglitz, at the risk of excommunication from the Cult of Obama, have come out vehemently opposed to the Obama plan. Stiglitz remarked:

"The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner's plan to wipe up to US$1 trillion in bad debt off banks' balance sheets, unveiled on Monday, offered "perverse incentives", Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

This all begs the question as to how and why the Obama administration is pushing a plan so favorable to banks and hedge fund/private equity investors. What happened to the "no more politics as usual" hope and change Candidate Obama that brought about this special interest beholding President Obama? An article in the Wall Street Journal today offers some insight into that question. Ace reporter Monica Langly says that President Obama has had to dial down some of his heated rhetoric about the financial industry of late because apparently the administration figured out it could not demagogue the crisis away (a strategy that works well in campaigns but fails miserably in governing).

It remains to be seen whether the newest iteration of the Obama/Geithner bailout plan works, but it is a settled matter now that Barrack Obama has sold out to the banks and institutional investors on the matter of principle. That he has cashed in his political chips with what has heretofore been perceived (incorrectly, I might add) as a constituency of the Republican Party will work in his favor only temporarily. The ultimate political undoing of Barrack Obama will come from the opportunists on both sides of the aisle that already recognize (as the banks did weeks ago) that he is an easy mark, both unprincipled and shallow.


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Comments (14)

Funny that you're citing Kr... (Below threshold)
Brian:

Funny that you're citing Krugman, who not only faults Obama for doing the same thing that Bush did (and failed at), but who also says that the $800 billion stimulus should really be around $3 trillion.

Ironic that this administra... (Below threshold)
John:

Ironic that this administration and lemmings have been vilifying and demonizing these greedy investors and are now the very same people they need to help make this work...

"Funny that you're citing K... (Below threshold)
STaylor:

"Funny that you're citing Krugman, who not only faults Obama for doing the same thing that Bush did (and failed at), but who also says that the $800 billion stimulus should really be around $3 trillion."
That was three weeks ago. Obviosly you did not even read the link before your oh so inciteful (and wrong)observation. I suppose the part were Krugman calls the plan a disaster dosn't mean that he is unhappy with the plan.

My own opinion of the plan is that it could work; at the cost of the financial security of the country. And by work I mean that it could get rid of these toxic assets, albiet by bribing the banks into believing that the assets aren't so toxic after all. The major problem is that we are moving way beyond toxic assets here; another trillion down the hole will only speed up inflation and a confiscatory tax regime that will hurt the economy more than those toxic assets ever had. I truly think that in this case the cure is worse than the disease, if the cure even works.
It seems unlikely that the banks and hedge funds will play ball even with this plan when they have congress ready to take 90% of their government subsidised earnings. Chances of this plan working are diminished by the gov's counterproductive incompetance.

Perverse incentives indeed.... (Below threshold)

Perverse incentives indeed. Does Obama want the plan to fail...so he can eventually justify taking over the financial sector? Can't put it past him. If you believe a crisis is a terrible thing to waste, why wouldn't you create a crisis?
http://www.rightklik.net/

Who says all those bank and... (Below threshold)
GarandFan:

Who says all those bank and hedge fund contributions to THE ONE, didn't pay off. Talk about return on investment!

That was three weeks ago... (Below threshold)
Brian:

That was three weeks ago.

Has something happened in the past three weeks that makes Krugman conclude that we no longer need a larger stimulus?

Obviosly you did not even read the link before your oh so inciteful (and wrong)observation.

Let's see... my observation was that Krugman "faults Obama for doing the same thing that Bush did". And in the link you claim I didn't read, Krugman is in despair because "Geithner has persuaded President Obama to recycle Bush administration policy".

What's "wrong" about that? I think you're the one who has failed to read.

I suppose the part were Krugman calls the plan a disaster dosn't mean that he is unhappy with the plan.

You would? Why would you suppose that? That would be a really stupid thing to conclude.

BrianYou can't possi... (Below threshold)
STaylor:

Brian
You can't possibly be as dense as you are pretending to be. You were trying to conflate what Krugman said about the stimulus plan with what he is saying about the bank plan; two different plans and two different opinions. Your observation had nothing to do with the merits of the bailout plan or the fact the liberal economists are bailing on Obama.
You were just trying to divert attention away from the argument and onto already settled issues like the stimulus and Bush's economic plans.
Kruman wrote that he was feeling 'a sense of despair' and that Obama was squandering his economic credibility, hardly an endorsement of Obama. He also did not merely fault Obama for continuing Bush's bailout strategy, actually it was just a proposal that was dropped, and instead seemed to have a many other greivences. So yes; you were and still are wrong and if you did indeed read the article should probably take some Hooked on Phonics courses.

You were trying to confl... (Below threshold)
Brian:

You were trying to conflate what Krugman said about the stimulus plan with what he is saying about the bank plan;

I did no such thing. This post from Hugh is about the "bank bailout" plan, and I cited Krugman talking about, quote, "the Obama administration's bank rescue plan". Are you trying to claim that either Hugh or Krugman is really talking about the stimulus plan instead? If not, then both comments address the bank plan.

In addition, I noted that it's funny that Hugh is citing Krugman, because Krugman "says that the $800 billion stimulus" (see where I said "stimulus"? That means I'm now talking about something other than the bank bailout plan) should be stratospherically higher. Since this is something that I'm sure Hugh would violently disagree with, I'm observing the absurdity of Hugh citing Krugman as an authority about anything. (Unless he's going to posit that Krugman is a genius on bank bailout plans, but a hack on economic stimulus plans.)

So in fact, you're the one who is conflating things, by suggesting that my "$3 trillion" comment was regarding the bank plan when I quite clearly was referencing the stimulus instead.

two different plans and two different opinions.

Exactly. And I cited both plans and both opinions separately.

Nothing is being conflated, at least for someone who's able to read and process two separate thoughts at the same time.

So yes; you were and still are wrong

Hmm, everything I said Krugman said, he said, and my context was clearly defined. Sorry, but you're the one being intentionally dense and antagonistic here.

"BrianYo... (Below threshold)
914:

"Brian

You cant possibly be as dense as You are pretending to be."

News flash....Hes not pretending.

BrianI cited on Kr... (Below threshold)

Brian

I cited on Krugman on Saturday about this issue and it should be apparent from the post that siding w/ PK is unusual for me. That said, there is nothing "absurd" about agreeing with him on the bank bailout and disagreeing with him on most everything else.

Isn't this what TARP 1 was ... (Below threshold)

Isn't this what TARP 1 was initially supposed to do - buy up the bad debt? That was the first thought of Paulson and Bernanke. You'll probably recall that they never did this, as they got rolling they realized it was either not necessary or a bad idea and the money should be used in other ways - I think they basically used it to keep banks operating until things shook out and stopped the run on banks that started way back with Chuckie Schumer. You'll also recall that the left howled and started throwing feces at the wall because they used the TARP 1 money differently than how they first presented it - that is, they didn't do what the Dems are planning to do now and is still considered a terrible idea.

Consequently TARP 1 seems to have done the trick and everything after it is just debt-increasing lard (except for the increased relief in things like food stamps and unemployment benefits, which pretty much everyone backed). Banks in Jan and Feb were lending at record levels according to the Fed (just not to as many people that are lousy credit risks, poor little 550 credit score things). All indications are that the credit 'crisis' ended by the beginning of 2009...after the TARP 1 money got things greased and way before the Democrats started wiping their rears with billion dollar bills and calling it Charmin. Any howling you hear about banks "not lending" are actually howling that banks are "not lending to poor credit risks like they were before" and really REALLY need to be reminded of where loose lending to poor credit risks got us.

Any howling you hear abo... (Below threshold)
Brian:

Any howling you hear about banks "not lending" are actually howling that banks are "not lending to poor credit risks like they were before"

Wrong.

Mortgage interest rates are already flirting with record lows and the Federal Reserve's move to buy up government debt will send those rates even lower. But it doesn't look like it will get any easier for borrowers - even those with good credit.
it should be apparent fr... (Below threshold)
Brian:

it should be apparent from the post that siding w/ PK is unusual for me.

Hence I said, "Funny that you're citing Krugman". I don't know why someone got their underwear in a bunch about it.

Funny that. We recently (wi... (Below threshold)
maggie:

Funny that. We recently (within the past two
weeks) got a letter of credit from our bank
to buy a tractor. I think we waited a couple
of hours for tne credit report.




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