Open Thread: Paul Krugman's Take on the Bailout, what's yours?

Paul Krugman posted this video and the following link to a CNBC discussion with the great title: Dr. Doom & the Black Swan: How to predict a financial crisis and the five signs of a bear, with Nouriel Roubini, RGE Monitor and Nassim Taleb,

So what does Nobel prize winner Krugman have to say. (Don't get me wrong I really respect him and check in on his blog at frequent intervals).

Krugman says its impossible to know just what the plan means. You pay your money and you take your choice (I'm saying that not him.) He says:

An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can’t understand.

I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation.

The plan deserves praise for what isn’t in it, at least as far as I can tell. There doesn’t seem to be provision for mass purchases of toxic waste at premium prices; there also doesn’t seem to be a massive “ring-fencing” guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.

... snip ...

So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place

Don't skip the videos! That's where the real commentary is? !!!


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Gates orders review of ban on photos of coffins


Defense Secretary Robert Gates ordered a review Tuesday of a Pentagon policy banning media from taking pictures of flag-draped coffins of military dead, signaling he was open to overturning the policy to better honor fallen soldiers.


At least two Democratic senators have called on President Barack Obama to let news photographers attend ceremonies at Dover Air Force Base in Delaware and other military facilities when military remains are returned to the United States. Obama told reporters Monday he was reviewing the ban.


"If the needs of the families can be met, and the privacy concerns can be addressed, the more honor we can accord these fallen heroes, the better," Gates told reporters at a Pentagon news conference Tuesday. "So I'm pretty open to whatever the results of this review may be."


They Serve and Died for the Country, Let the Country Honor Them in Viewing Their Arrival Back To!!


"The wise man points to the stars and the fool sees only the finger - and discusses it 24/7 on cable."

and the times...they are a changin!

Cartoon by Nick Anderson.

"The wise man points to the stars and the fool sees only the finger - and discusses it 24/7 on cable."

It's unavoidable. Start breaking up Citi and BofA into smaller units no longer too big to fail. But there's no political will for reality.

The CNBC interview with Roubini and Taleb was horrifying. (Part I and Part II here - really - stunning in just how clueless the hosts were they come off as a panel of Keystone Kops) How the hosts behaved was a reflection on the idiocy that caused this mess. Roubini and Taleb were trying to warn just how bad things were going to get, and the twits wanted stock tips eventhough both men stated they were in cash positions! I think Roubini and Taleb have a good handle on what's going on. Krugman is more or less saying the same thing but in a much more polite way. 

This is only a small excerpt from a much longer piece that's very much worth reading.


It Is Time to Nationalize Insolvent Banking Systems
By Nouriel Roubini, February 10, 2009

So why is the US government temporizing and avoiding doing the right thing, i.e. take over the insolvent banks? There are two reasons. First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time. Second, taking over the banks – call is nationalization or, in a more politically correct way, “receivership” – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken.  [...]

So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

but don't think anyone in political office has the courage to do it either.  Calculated Risk points to an interview ABC did last night with Obama.  Pretty clear that he has no intention of taking the painful steps necessary now to do what will need to be done to get us back on the right track.  The net takeaway was:

"But stop and think about what Obama is saying. We know the correct answer, but we are afraid to do it - because of our "culture" - so we are going to follow the Japanese plan."

Check out the link above for the quotes from the interview.  The post is also updated with Roubini's thoughts on nationalization. 

I agree. But I prefer another model to Nationalization--which tends to run fascist in a corporation-dominated world. I like the Co-op model. Oddly, I've found a lot of Republicans (at least the kind they still have a few of up here in the NE), who also like the direct public ownership of utilities, or common assets. I've always preffered credit unions, shopping at Co-ops at which I was a member. I'm a big supported of Community Supported Agricluture, community gardens, and community composting co-ops. Now my electricity comes from a Co-op.

I agree that for the short term we should Nationalize the Banks. But in the long term, we should look into decentralizing, scaling, and localizing those assets into community owned Co-ops, under local control, to be used for micro-loans, green infrastrucutre investment, and other needs best assessed and solved by those dreaded "community organizers."

We are living in an interminable succession of absurdities imposed by the myopic logic of short-term thinking.—Jacques-Yves Cousteau

Agree about decentralizing. If it's too big to fail, it's too big. Why should taxpayers pay for irresponsible mergers and acquisitions?

I got a letter in the mail from my bank one day announcing it had been purchased by Citi. The next day, I closed my account and moved my checking to the credit union where my savings account is. I have no intention of going back to private banking.

I'm reading Infinite Jest right now, which means I'm simultainiously reading the dictionary, which puts me in a very deconstructionist mode. While I'm still suffering from a monstrous political headache from the cheap whiskey philosophy of disasterous deconstruction perpetuated by Cheney and Company, I have been more philosophical lately. Trojan horses, by definition, if they are to work, rely on a simple understanding that misses the important contents. It looks cool enough to wheel it in, to believe that your enemy would do such a nice thing, to celebrate the thought behind the present.

And in Bizzaro world, such as the GOP is these days, something they can use to "define" their core Philosophy looks like a big pretty gift-wrapped present to them right now. Once the innerworkings start to open and unfold, like stored solar panels on a space craft, and cranking out the Big Government juice, things will start to look better. And there will be the GOP, in a pile of ripped wrapping paper and untied ribbons, looking stupider than ever.

My Granny, who had a picture of a white Jesus next to her picture of FDR, used to say you can catch more flies with sugar... Well, GOP, swarm on this! I'm just glad that Obama learned really quickly that the best way to catch a Republican is to give him something to hate.

Whoo. I kinda lost the handle on that one. David Foster Wallace is a mental Trojan Horse.


We are living in an interminable succession of absurdities imposed by the myopic logic of short-term thinking.—Jacques-Yves Cousteau

What remains at issue:

1) Continuing collapse of housing prices around the country, foreclosures, indirect consequences on related economic activity.

2) With housing prices, and other assets continuing to fall, asset-backed securities and other spun-off 'bs' continues to deteriorate.

3) Those who bought the asset-backed and related junk, where ever they are, continue to lose what some still call value.

So nationalized or not, in the two years since the early Spring of 2007 when the sub-prime form of the bubble began to pop, the biggest "what didn't happen yet that still needs to happen" question is the political one "who is going to take the losses?" This is the issue festerng away in places like China, as Bloomberg reported yesterday.

Left the way it is the homeowners suffer. There can't be an agreement that can help people with their mortgages and foreclosure problems as long as the banks and the Fed continue to insist that asset-backed securities and related crap maintain value beyond the underlying, yet still collapsing prices of the actual properties. They insist they don't have to do this because issues will be taken care of in a supposed future recovery of asset prices.

It is not hard to see how both nationalization and TARP or TLAF type approaches would commit to help the four or six banks which are corporate face of insolvency today. The tax payer is the largest source of funds, but doesn't have control. The question of "who takes the losses?" is quite tightly connected to all the 7-8 trillion the Fed has committed so far to the end of backing the hlders of the unrecognized losses. Stiglitz discussed what to do to and for the banks on TPMTV

The Gang of Four or Six (main insolvent banks) are, in effect working with holders of asset-backed and related securities globally to take the cost of their losses out on the homeowners and the rest of us. This collaboration is related to the strengthening of the dollar, the oil price and to absolutely murderous austerity against third world countries (which very few US economists give a hoot about). Latin America as a whole is expected to go through 15% plus decline in economic activity in the coming year.

There needs to be a way to separate the homeowners,the tax payers and the asset holders from the banks who created the problem. It is a political problem, not a financial technical problem. It requires global negotiations to turn the world situation into a plus for the US. It is a lot more than what "fill in the blank name in the form of a verb" should be done to the banks, or not.

I thought this clip of Maxine Waters going after the Gang of Four or Six today is a lot of fun.