The Geithner Put: Will It Work?
Interesting debate between four economists over at the Times concerning the latest revision of the TARP from Treasury.
From what I understand - and don't quote me on this - Geithner's program provides non-recourse low-cost loans to private investors. Basically the gov't is subsidizing about 93% of the cost of buying up at least $500B in toxic assets. This gives investors essentially zero downside with the taxpayer* FDIC on the hook for major cabbage if the assets turn out to be worthless in actuality, not just artificially depressed (as the Geithner camp is hoping is the case).
The debate ranges from "this plan sucks" (Krugman) to "better than nothing" (DeLong). From what I've read it seems that the plan will help, but the real question is whether it is just delaying an inevitable nationalization.
*Update: My mistake. The taxpayer isn't on the hook because the FDIC (funded by bank fees, not tax dollars) guarantees the loans to investors to purchase suspect loans from banks, although the taxpayer is on the hook for the second part of the program, which targets purchase of mortgage-backed securities (the typical so-called toxic assets). Check this post for clarification. But the gov't is nevertheless giving investors a huge incentive here assuming auction prices are acceptable to institutions holding these crappy assets.
4 comments:
It gets worse: the question is asked at the hearing today whether [Geithner/Benancke] would be recommending that, per the Russian/European/UN recommendation, a forsaking of the American dollar in favor of a new world vehicle: they both say they are not recommending that. Keep watching while you determine whether you a) understand what this means, and b) could support/sign on to it. [It might be useful to consider why those who cannot might think and feel as they would about it, and why this question is NOT being widely aired for the edification of The People: it's been on the Book of working hours debate for days now (and feared by some philosophers of US governmental decisionmaking and policy development for years and years - especially since FDR), so ... there is much to contemplate and is not to be blown off as cult-thought.] DocWho
Oh yes, and China, too, I forgot, came forth asking for such an international currency ~ everyone out sudden friends, attempting to pull "the United States" out of its financial crisis [scratch] CATASTROPHE. Snack down my stethoscope and call me deaf!
Doc: Sounds like Bernanke, Geithner, and Obama in tonight's press conference dismissed this idea. I've only just thought about this issue today after having read your comment hearing a bit about it on the radio, but indeed I'm not sure I can see any reason why a US citizen would support such a thing right now...seems like there would only be potential downside to the $USD in the foreseeable future. We'd be slitting our credit lifeline.
China's just whining because they have so much $ locked up in Uncle Sam's pockets.
I think you'd find, should you come to consider it, that there is as aspirational whine for something more than what a statement (and a question like this, I submit, IS a statement...perhaps an assertion) may appear to ask (say)!
Dismissed the idea?
Geithner has stated, and I quote, "...we would welcome that" although not at the moment of the hearing, it is true: he was smacked back by the President's men earlier in the day. I'll let you make of or ignore about it what you will: I sense it means something in that Denmark -- sniff, sniff...Ooooh, fish.
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