This song about Paul Krugman raises an important point: why isn’t Krugman or someone like him calling the shots, rather than people like Treasury Secretary Timothy Geithner and White House National Economic Council Director Larry Summers who helped cause the crisis?
Plus it should make you laugh.
(Hat tip to Thers at FDL.)
American dollar toilet paper roll
The financial crisis currently unfolding before our eyes in slow motion was inevitable and predictable. I say this because it was predicted by numbers of people. It was obvious; anyone with sense knew it was coming (a group which apparently includes very few people); and despite the fact that we’ve known for years it was going to happen, it happened anyway.
The same was true of the dot-com bubble. The inevitability of the dot-com collapse was obvious, at least as far back as 1996/1997. Everyone knew it who wasn’t paid not to know it, and it happened anyway and burst anyway.
Both of these foreseeable collapses raises the question of deliberate government policy—both bubbles were fostered and grown from tiny soap-suds with the aid of Alan Greenspan’s Fed and various other government and private and semi-private actors (in the case of the current collapse, including Fannie Mae and Freddie Mac).
Creating the bubble behind the current financial crisis took the cooperation and encouragement of a lot of people beyond the government, people who benefited a great deal from it. Let’s take Chuck Prince, the ex-CEO of Citigroup. Prince walked away from his near-destruction of Citigroup with about $41.5 million, including a $12 million bonus for his performance. The moral of the story is: drive the place into the ground, get paid well. Then there’s Merrill Lynch’s Stan O’Neal who walked away with $160 million.
Nice work if you can get it.
But if the rot was limited to the top, it wouldn’t be nearly as big a problem.
I’m going to discuss the administration’s plan to take toxic assets off the banks, then talk about what this and other moves this week (such as the FED announcing $1.15 trillion in new spending) tells us about the administrations plans for the financial sector and the economy, and how I believe they’re going to play out, as well as what the political power realities now are.
There are three parts to the plan to take toxic assets off the banks’ hands, of which we have mostly the details of the first part, in which the FDIC will form “private/public” partnerships to buy up assets.
The government will share in any profits or losses of the underlying security, though we don’t know what percentage goes to the private investor or the public.
Think of the investment split in simple terms. If I want to invest in securities, why would I want a 3% partner with whom I have to split the return? If the government is investing 97% of the money, why are they even bothering with private partners? Why not just pony up another 3%? Oh sure, there may be some occasions on which the private partners put up more, but if the government thought they could get more, why are they offering 97% financing, with 85% being a complete write-off if the asset goes down rather than up?
There are two possible answers I can see.
Clio, By Giovanni Baglione
This is the home blog of Ian Welsh. It seemed like time to make one since as a peripatetic author and editor for hire my writings are scattered all over the web and in many cases have disappeared as the blogs they were on went out of business.
If you want to read what I’ve written in the past, you can find partial archives at Firedoglake, The Agonist and the Huffington Post.
Going forward, everything I write will be published here, though it may be published at another site as well. There will also be content here that is not found elsewhere, so do check back, or sign up for newsfeed or email updates. I will also be showcasing previously-published articles that withstand the test of time, as many of the older ones were read by very few people when they were originally written, and sadly remain pertinent today.
I hope you will contribute your comments and I look forward to your feedback and suggestions.
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