Mar 21 2009
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 thereâ€™s nothing fundamentally wrong with the financial system â€” that what weâ€™re facing is the equivalent of a run on an essentially sound bank. AsÂ Tim DuyÂ 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 â€” deliberately! â€” 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 stuffÂ mightÂ be worth something; and if it isnâ€™t, thatâ€™s someone elseâ€™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 theirÂ 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?