[Vision2020] Debate about the bailout

Andreas Schou ophite at gmail.com
Fri Sep 26 12:57:26 PDT 2008


I would be somewhat careful about picking the $37,000 mote from
Krugman's eye before looking at the million-dollar beam in Phil
Gramm's.

-- ACS

On Fri, Sep 26, 2008 at 12:11 PM, Jeff Harkins <jeffh at moscow.com> wrote:
> 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.â€
>>
>>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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