Mar 21 2009

Obama & Geithner: Let’s Tank The Economy One More Time

Published by at 12:21 pm under All General Discussions

You know things have to be really messed up for someone like me to agree with someone like Paul Krugman. But the Obama/Geithner plan coming out to fix the real estate market is a recipe more and more ruin, so much that Mr. Krugman and I find ourselves in horrified agreement:

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Mr. Krugman and I disagree on the source of the problem and the solutions (and just about everything else in life too). But here we must agree. This is the same risky liberal scheme that got us into this mess, where unscrupulous investors get win-win deals which line their pockets and we, the hard working taxpayers, have to foot the bill to cover their missteps, while they get to keep any rewards. Is it too soon to call for impeachment on the grounds of incompetence? Can we trust the Dem Congress to avoid this disaster?

15 responses so far

15 Responses to “Obama & Geithner: Let’s Tank The Economy One More Time”

  1. TomAnon says:

    Oh no…. AJ = Krugman,

    suppose every so often even a blind squirrel finds and acorn every now and them. Good idea to give credit where it is due even for a total dyed Red Commie like Paul Krugman.

    Well I have been pretty much silent since the election. I was in a state mourning I guess. I was making myself a little homemade Cappuccino this morning/afternoon and read this startling analysis from AJ above.

    Yikes.. Dude, Krugman???

    Even he (Krugman) can see Obama is messing up, real bad. And, he realizes he will never have his socialist utopia because Obama is doing to many stupid things real fast.

  2. WWS says:

    This is probably the most significant op/ed out this weekend. Good on you for highlighting it.

    Why so significant? Because as you note, Krugman is generally the most far-left economist out there. (For those that don’t recognize the name, he’s been the chief economics writer for the NYT for many years now.) He’s generally been supportive of almost all of the extreme economic initiatives of the Obama campaign. For him to break off now is huge – it means that there is NOT A SINGLE reputable economist in this country who backs the plan Geithner is about to announce.

    And Krugman does nail the biggest problem with this farce – once this fails there will no longer be any political capital left to mount the *real* plan tht might help things.

    What Krugman knows, but does not say, is that Obama’s presidency is about to crash and burn spectacularly. Unfortunately for us, that’s exactly what our economy is going to do as well. Someone says it’s already crashed? You ain’t seen nothin’ yet.

  3. Chuck says:

    Krugman says Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.
    There is no confidence problem. Anyone with any brains knows, with 100% confidence, that if you loan money to people who don’t have the financial resources to pay they will eventually default and you will be left holding the empty bag.

    So lets print some money, say $1 Trillion worth , and use it to help lower mortgage interest rates. People not fooled weren’t surprised when the dollar fell and gold and silver soared. So who will qualify for the lower mortgage rates, certainly not those people with poor credit and no down payment and yes I mean those who just finished defaulting on their previous mortgages.

    But that was last week. The hail Mary pass for next week is the “misunderstood asset” plan. I have to wonder why, if this plan is so brilliant, Paulson ended up not using it. If it was his conclusion that it wasn’t going to work and now Geithner is going to try it anyway there is serious “stuff” ahead.

    How serious? Does a 5000 or 6000 Dow get your attention? How about a $US worth half as much as it is now because that is what you will see if the Chinese conclude that their US currency support is too risky. BTW I don’t consider either of these possibilities as extremist since I have heard much worse. Inflation, hyperinflation, depression are all words that will have meaning to people who have read about them in economic texts, you know those texts that explain why we are so much smarter now and it can never happen to us. It’s to bad those texts didn’t realize that Congress has the power and not the brains or talent to recognize the consequences of their actions.

    Anyone watch Jericho?

  4. crosspatch says:

    This administration is the most incompetent since Carter. Obama has no training in economics. He has spent most of his adult life as a “housing advocate” working for the implementation of the very programs that caused this mess. The people he battled against in that implementation who understood banking, economics, and the housing market warned that this very problem that we see today would happen as a result of those programs.

    And now the solution seems to be something out of Peter Pan where if we all just “believe” really hard, we can make things all better again. They are living in a fantasy world. They are completely disconnected from the market realities and are focused on a dream of how they wish things would be or wish things would work. Nothing aside from absolute collapse is going to knock any sense into their heads and even then I suspect they would put the blame of others.

    If everything would be what they want it to be, then things would all work out and if we all believe really, really, hard, we can make that come true. I am sorry but “hope” doesn’t move markets. But we are going to get change … a belly full of it. But I don’t believe it is the kind of “change” they are looking for.

    We have economic kindergartners playing with the value of our homes, our investments, our retirement, and the futures our our children. THAT is the problem with too much central government control … they can wreck the lives of millions by making one poor decisions. Allowing the market to work itself is better because individual bad decisions will cause individual failures but they won’t be systemic across the entire economy the way central planning makes things.

    Me are being led by morons who believe that a small committee of individuals can micro-manage the largest economy on the planet.

    We have become an idiocracy.

  5. lurker9876 says:

    Miss reading TomAnon. Thanks for coming back. :)

    I get so exasperated with people who just don’t see “it” (socialism, communism) coming and how this affect these guys. I just don’t get it.

  6. Terrye says:

    The thing that bothers me the most about Obama is his constant attempts to cover his butt. Fixing things runs a slow second to evading responsibility.

  7. crosspatch says:

    “Fixing things runs a slow second to evading responsibility.”

    That is the mark of the narcissist. They never “fail”. It is always the fault of someone else when things don’t work as planned. A narcissist never has a bad plan, other people just executed it incorrectly, or something. They don’t “get” that if their plan failed, then THEY failed. An executive is responsible for how it is executed, too. Narcissists have a keep eye for assigning “blame”.

  8. crosspatch says:

    DANG, I really, really, want that edit function back. I can often only post in brief moments of time on a busy day and I get in a hurry and typo most stuff. I got lazy when we had edit.

    How come it went away?

  9. WWS says:

    I miss the edit function, too.

    This belief that “confidence” is all that matters is why Obama is back in campaign mode. All he knows how to do is to read a teleprompter and vote present.

    That ain’t gonna work now. He really believed that Geithner could fix this. Pretty ironic – the consummate con artist let himself get conned by an even bigger con artist. And now they’re supposed to fix things and all any of them know how to do is to run cons.

    When even Krugman bails on the program, you can see the wheels coming off the crazy train.

    None of them understand that you can only regain the precious confidence they seek by coming up with a real plan that has some kind of chance of working.

    Here’s a way to massively increase confidence overnight, and no kidding, this would work: Announce that the trillion dollar health care plan is off the table for now. Too bad, can’t do it. Then announce that cap and trade for energy is dead – too expensive. Then announce a plan to revoke the “stimulus plan as written and refocus all of the money and effort on jobs this year only.

    Well, no one in this administration wants recovery THAT bad.

  10. crosspatch says:

    Oh for crying out loud. Obama now wants to “regulate” executive pay at banking institutions and “possibly other companies”. This crisis was NOT caused by executive compensation and it will NOT be fixed by limiting executive compensation. Yes, it appeals to people emotionally in these times but that is all it is, meant to increase the popularity of a flailing leadership by appealing to emotions. It is sort of like giving flowers after you have forgotten your anniversary, gotten fired from your job, and gambled all your cash away at a casino.

  11. AJStrata says:

    The edit function is gone? Sorry about that folks! Will try and get it back. When you have god-like privileges it is hard to know when things change for you ‘common’ folks. Sorry, that was so Obama of me.

  12. lurker9876 says:

    AJStrata, you’re too funny.

  13. crosspatch says:

    Was reading the article on AIG over at The Rolling Stone, it is actually a pretty good article once you get into it (it starts out kinda slow). But what it looks like is the seeds of all of this were planted in 1997,1998, and 1999 (gee, who was President then?) when some really major changes were done. For example, AIG was regulated not by the company that oversees banks but by the company that oversees “thrifts” because Clinton signed a law back in 98 or 99 that allowed a company to change regulatory oversight if they owned even a single thrift. So AIG went and bought one savings and loan and changed regulators. The thrift regulator had only one insurance overseer on staff, and AIG was one of the largest insurance concerns in the world.

    Clinton also signed a law that allowed investment and conventional banks to be treated equally. It used to be that investment banks required more capital reserves because of the volatility of the underlying assets. At the same time, money from financial institutions began to pour into DC in the form of campaign contributions and hiring of lobbyists.

    But anyway, it looks like the foundation of this collapse was laid during Clinton’s second term as President.

  14. AJStrata says:

    CP,

    Interesting. And what was so important about Clinton’s second term? He was fighting impeachment. Betcha that was the price he was supposed to pay to avoid calls for resignation.

  15. lurker9876 says:

    Interesting…but…who had the majority of the houses during those years? I thought the Republicans had the majority?

    Regardless, who provided the driving force in making these sweeping changes before they went before Clinton for signatures?