Krugman lays it down
The bank bailout plan is a stinker, sez Paul Krugman:
Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
I think the operative phrase is "clouded by excessively close ties to Wall Street." Both Tim Geithner and Ben Bernanke are creatures of the massive entitlement culture that spawned the erstwhile Masters of the Universe. Basically, instead of following the "nationalization" plan of seizing the banks and placing them in receivership until their assets are rehabilitated -- a model that served us well during the last Bush-era financial brouhaha, the savings and loan scandal of the late 1980s, and a model that rescued the Swedish economy -- Geithner wants to purchase the "toxic" mortgage-derivative assets held by the banks at a far higher price than that at which the allegedly infallible free market values them. And he's willing to give them subsidies in order to do so.
Once again -- privatizing the profits, socializing the losses. Damn it feels good to be a banksta.