[Vision2020] Debate about the bailout

[Jeff Harkins]

Isn't this the same Paul Krugman that served as an economic advisor to Enron?

At 11:06 AM 9/26/2008, you wrote:
>Good Morning Visionaries:
>
>This column by Paul Krugman is the best I've 
>seen on the bail out.  The best parts about the 
>current plan is limiting the first installment 
>to $250 billion and the all important "equity sharing."
>
>People are rightly critical of the $700 billion 
>price tag, but nobody, except me, has pointing 
>out that giving every American family or 
>individual $5,000 or $2,500 for their health 
>care would cost $810 billion.  McCain would get 
>$360 billion from new taxes on employee health 
>premiums (which would knock at 20 million people 
>off these secure and comprehensive plans), but 
>there would still be a $450 billion deficit for 
>very little health coverage in return.
>
>Nick Gier
>
>September 26, 2008
>The New York Times
>Where Are the Grown-Ups?
>By PAUL KRUGMAN
>
>Many people on both the right and the left are 
>outraged at the idea of using taxpayer money to 
>bail out America’s financial system. They’re 
>right to be outraged, but doing nothing isn’t 
>a serious option. Right now, players throughout 
>the system are refusing to lend and hoarding 
>cash — and this collapse of credit reminds many 
>economists of the run on the banks that brought on the Great Depression.
>It’s true that we don’t know for sure that 
>the parallel is a fair one. Maybe we can let 
>Wall Street implode and Main Street would escape 
>largely unscathed. But that’s not a chance we want to take.
>
>So the grown-up thing is to do something to 
>rescue the financial system. The big question 
>is, are there any grown-ups around — and will they be able to take charge?
>Earlier this week, Henry Paulson, the Treasury 
>secretary, tried to convince Congress that he 
>was the grown-up in the room, come to protect us 
>from danger. And he demanded total authority 
>over the rescue: $700 billion to be used at his 
>discretion, with immunity for future review.
>
>Congress balked. No government official should 
>be entrusted with that kind of monarchical 
>privilege, least of all an official belonging to 
>the administration that misled America into war. 
>Furthermore, Mr. Paulson’s track record is 
>anything but reassuring: he was way behind the 
>curve in appreciating the depth of the 
>nation’s financial woes, and it’s partly his 
>fault that we’ve reached the current moment of meltdown.
>
>Besides, Mr. Paulson never offered a convincing 
>explanation of how his plan was supposed to work 
>— and the judgment of many economists was, in 
>fact, that it wouldn’t work unless it amounted 
>to a huge welfare program for the financial industry.
>But if Mr. Paulson isn’t the grown-up we need, 
>are Congressional leaders ready and able to fill the role?
>
>Well, the bipartisan “agreement on 
>principles” released on Thursday looks a lot 
>better than the original Paulson plan. In fact, 
>it puts Mr. Paulson himself under much-needed 
>adult supervision, calling for an oversight 
>board “with cease and desist authority.” It 
>also limits Mr. Paulson’s allowance: he only 
>(only!) gets to use $250 billion right away.
>
>Meanwhile, the agreement calls for limits on 
>executive pay at firms that get federal money. 
>Most important, it “requires that any transaction include equity sharing.”
>
>Why is that so important? The fundamental 
>problem with our financial system is that the 
>fallout from the housing bust has left financial 
>institutions with too little capital. When he 
>finally deigned to offer an explanation of his 
>plan, Mr. Paulson argued that he could solve 
>this problem through “price discovery” — 
>that once taxpayer funds had created a market 
>for mortgage-related toxic waste, everyone would 
>realize that the toxic waste is actually worth 
>much more than it currently sells for, solving 
>the capital problem. Never say never, I guess — 
>but you don’t want to bet $700 billion on wishful thinking.
>.
>
>The odds are, instead, that the U.S. government 
>will end up having to do what governments always 
>do in financial crises: use taxpayers’ money 
>to pump capital into the financial system. Under 
>the original Paulson plan, the Treasury would 
>probably have done this by buying toxic waste 
>for much more than it was worth — and gotten 
>nothing in return. What taxpayers should get is 
>what people who provide capital are entitled to: 
>a share in ownership. And that’s what the equity sharing is about.
>The Congressional plan, then, looks a lot better 
>— a lot more adult — than the Paulson plan did. 
>That said, it’s very short on detail, and the 
>details are crucial. What prices will taxpayers 
>pay to take over some of that toxic waste? How 
>much equity will they get in return? Those 
>numbers will make all the difference.
>.
>
>And in any case, it seems that we don’t have a deal.
>
>This has to be a bipartisan plan, and not just 
>at the leadership level. Democrats won’t pass 
>the plan without votes from rank-and-file 
>Republicans — and as of Thursday night, those 
>rank-and-file Republicans were balking.
>Furthermore, one non-rank-and-file Republican, 
>Senator John McCain, is apparently playing 
>spoiler. Earlier this week, while refusing to 
>say whether he supported the Paulson plan, he 
>claimed not to have had a chance to read it; the 
>plan is all of three pages long. Then he 
>inserted himself into the delicate negotiations 
>over the Congressional plan, insisting on a 
>White House meeting at which he reportedly said 
>little — but during which consensus collapsed.
>The bottom line, then, is that there do seem to 
>be some adults in Congress, ready to do 
>something to help us get through this crisis. 
>But the adults are not yet in charge.
>
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