Nobel prize winner Paul Krugman slams Geithner bank bailout plan

March 23, 2009 by · Leave a Comment
Filed under: Opinion 

Dr. Krugman is correct, this does seem like the “trash for cash” plan from the former administration.  What is the point to bring in private capital to purchase these bad assets if they don’t even need to make good on the debt the government is financing if you can just walk away when it goes sour?

I would like to see a list of assets they are selling.  Unless they are mortgage-backed securities, I don’t see what else could have much value.   Maybe some derivatives that are still good but then you are getting the market is at bottom and more defaults are not on the way.  What I think might be really happening is that this could be away to get these assets / liabilities off the balance-sheet and when they go bad, the government will take them back and not the bank so in the end it will be our problem with a nice foreword that states we tried something that is a market-based solution.

Press Release (Reuters):

Nobel-prize winning economist Paul Krugman said in remarks published on Monday that the latest U.S. Treasury bailout program is nearly certain to fail, triggering a sense of personal despair.

U.S. Treasury Secretary Timothy Geithner on Monday unveiled a plan(Bloomberg Whitepaper on Plan) aimed at persuading private investors to help rid banks up to $1 trillion in toxic assets that that are seen as a roadblock to economic recovery.

“This is more than disappointing,” Krugman wrote in The New York Times. “”In fact it fills me with a sense of despair.”

“The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt,” the Princeton University economist said, citing weekend reports outlining the plan.

“This isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets,” he added.

Krugman called it a recycled idea of former Treasury Secretary Henry Paulson, who later abandoned the “cash for trash” proposal.

Click Here to Read More

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!