Krugman's Despair
Paul Krugman is in despair. Why should I care? When some of us were writing about the coming recession 14 months ago, Krugman was oblivious, saying “it’s unlikely that America will experience a recession as severe as that in, say, Argentina.”As Barack Obama’s campaign gained strength a year ago, Krugman insisted that it was pipe dream and that Hillary Clinton was the only candidate that could beat the Republicans.
Now Krugman insists the only route for the Obama administration is to nationalize the banks. Krugman insists the public/private partnership announced yesterday by Tim Geithner is fatally flawed.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt.
So maybe he should explain why Larry Fink of Blackrock and Bill Gross of PIMCO both are willing to put hundreds of millions of their own dollars at risk alongside the government to buy these assets? As Gross explained it, he puts up $50 Million, the Treasury puts up $50 Million and the Fed loans the partnership $300 Million. Krugman assumes Gross is going to put $50 million at risk just because the $300 million is non-recourse debt?
The problem with Krugman’s whole nationalization scheme is that it creates a self-fulfilling prophecy for the Bear Raiders who have been shorting bank stocks. Assume we nationalize Citibank. The bears turn to another prey, Bank Of America. If they drive it’s stock low enough, it too will get nationalized. The big question will always be “who’s next?” The non-nationalized banks will be like wounded antelopes confronting a pack of wolves. Where will it end?
The whole Washington/New York axis of Cassandras might want to reconsider their “end of the world” rhetoric. I’d hate for Paul Krugman to look foolish three times in 12 months.
Meow!
Do we have issues with the esteemed, Nobel Laureate Dr. Krugman?
Like all the other economic weenies out there, they all need to be taken with a grain of salt.
There are but few, and neither Krugman nor Geithner nor Summers are part of any group that is entirely, or even significantly credible.
Long ago and far away, I used to be a high level executive of a major engineering firm. At the top, we KNEW what we wanted and what was good for us was ultimately good for the company – after all WE WERE the company. Same thing going on here with Geithner and the rest. And – it ain’t necessarily so – what is good for Wall Street isn’t necessarily good for America.
I’ve been reading on how the administration is starting to “toe the line” of the big Wall Street bankers and tycoons. There goes your interregnum. If the financial weenies keep control as they do now, it all goes back to the way it was.
Not a good thing. The only real solution is to let them fail, or succeed if they can. Most are insolvent, let ‘em die.
Meow!
Do we have issues with the esteemed, Nobel Laureate Dr. Krugman?
Like all the other economic weenies out there, they all need to be taken with a grain of salt.
There are but few, and neither Krugman nor Geithner nor Summers are part of any group that is entirely, or even significantly credible.
Long ago and far away, I used to be a high level executive of a major engineering firm. At the top, we KNEW what we wanted and what was good for us was ultimately good for the company – after all WE WERE the company. Same thing going on here with Geithner and the rest. And – it ain’t necessarily so – what is good for Wall Street isn’t necessarily good for America.
I’ve been reading on how the administration is starting to “toe the line” of the big Wall Street bankers and tycoons. There goes your interregnum. If the financial weenies keep control as they do now, it all goes back to the way it was.
Not a good thing. The only real solution is to let them fail, or succeed if they can. Most are insolvent, let ‘em die.
Krugman may have a habit of crying ‘wolf’, but as I recall, it was on the third occasion that the wolf actually showed up.
Krugman may have a habit of crying ‘wolf’, but as I recall, it was on the third occasion that the wolf actually showed up.
What I am seeing in commentators on the economy seems to resemble the programming during the football season (any sport would do). The cable stations have two or three hours of people with “sports” background analyzing how the game, that has not yet been played, will come out. Like they have some special insight that will tell them how random plays on the field will happen. Then with a little luck we get to watch the game. This is followed by two to three hours of analysis of what just happened. There are too many talking heads on just about every topic including the economy. They are all good at talking, but not at proving their hypothesis.
I value the academic environment where we “study” events and try to prove or disprove a hypothesis, but of course we endeavor to use documented data in the process. Our media culture is now filled with people like Joe Scarborough, for example, who think they know all and bring us the truth. I am tired of it and I do not find it helpful. I find Krugman is another who has gotten so full of himself and now believes he is the savior of the world. While I am left wondering just what in the hell is going on.
What I am seeing in commentators on the economy seems to resemble the programming during the football season (any sport would do). The cable stations have two or three hours of people with “sports” background analyzing how the game, that has not yet been played, will come out. Like they have some special insight that will tell them how random plays on the field will happen. Then with a little luck we get to watch the game. This is followed by two to three hours of analysis of what just happened. There are too many talking heads on just about every topic including the economy. They are all good at talking, but not at proving their hypothesis.
I value the academic environment where we “study” events and try to prove or disprove a hypothesis, but of course we endeavor to use documented data in the process. Our media culture is now filled with people like Joe Scarborough, for example, who think they know all and bring us the truth. I am tired of it and I do not find it helpful. I find Krugman is another who has gotten so full of himself and now believes he is the savior of the world. While I am left wondering just what in the hell is going on.
So Paul Krugman is a terrible market forecaster, big deal.
The questions at hand are: 1) whether the Geithner/Summers plan is likely to work, and 2) whether it’s also wise to consider the nationalization/turnaround alternative. If you believe that the market is still irrationally undervaluing the MBS’s, then the G/S plan should look good to you. If you believe that the MBS write downs reflect true decreases in future cash flow expectations, the plan is going to look bad to you.
Whether or not we believe in the G/S plan, it makes sense that we should have a turnaround plan in place that considers going in to the Big 4 banks which hold 70%+ of the market. This is good disaster recovery planning; even if you don’t have to go in to any or all of the banks and do this, you need to have the ability and willingness to do so, should it become necessary.
The thing that concerns me is that this scenario apparently hasn’t been considered. It may be a bad idea for the country, but the fact that Summers/Geithner et al aren’t able to articulate the flaws in such a plan in the face of Krugman/Steiglitz/De Long et al’s criticisms tells me that they haven’t thought things through.
So Paul Krugman is a terrible market forecaster, big deal.
The questions at hand are: 1) whether the Geithner/Summers plan is likely to work, and 2) whether it’s also wise to consider the nationalization/turnaround alternative. If you believe that the market is still irrationally undervaluing the MBS’s, then the G/S plan should look good to you. If you believe that the MBS write downs reflect true decreases in future cash flow expectations, the plan is going to look bad to you.
Whether or not we believe in the G/S plan, it makes sense that we should have a turnaround plan in place that considers going in to the Big 4 banks which hold 70%+ of the market. This is good disaster recovery planning; even if you don’t have to go in to any or all of the banks and do this, you need to have the ability and willingness to do so, should it become necessary.
The thing that concerns me is that this scenario apparently hasn’t been considered. It may be a bad idea for the country, but the fact that Summers/Geithner et al aren’t able to articulate the flaws in such a plan in the face of Krugman/Steiglitz/De Long et al’s criticisms tells me that they haven’t thought things through.
So here’s the problem; the big banks have lost an almost incalculable amount of money by foolish investments (many of dubious legality), by poor control of their executives, (e.g. AIG’s Financial Products Division) and by excessive leverage which was wonderful on the way up but fatal on the way down.
So who should take the losses?
Geithner’s answer is, in effect, that the big banks are too big to be allowed to fail – that they must be made whole. Steve Randy Waldman disagrees:
Of course the whole notion of repairing bank balance sheet is a lie and misdirection. The balance sheets we should want to see repaired are household balance sheets. Banks have failed us profoundly. We want them reorganized, not repaired. A world in which the banks are all fixed but households are still broken is worse than what we have right now. Too-big-to-fail banks restored to health are too-big-to-fail banks restored to power. The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.
http://interfluidity.powerblogs.com/posts/1237877649.shtml
He goes on to explain just why the Blackrock and PIMCO may be willing to put their own money at risk.
Welcome to the nightmare.
So here’s the problem; the big banks have lost an almost incalculable amount of money by foolish investments (many of dubious legality), by poor control of their executives, (e.g. AIG’s Financial Products Division) and by excessive leverage which was wonderful on the way up but fatal on the way down.
So who should take the losses?
Geithner’s answer is, in effect, that the big banks are too big to be allowed to fail – that they must be made whole. Steve Randy Waldman disagrees:
Of course the whole notion of repairing bank balance sheet is a lie and misdirection. The balance sheets we should want to see repaired are household balance sheets. Banks have failed us profoundly. We want them reorganized, not repaired. A world in which the banks are all fixed but households are still broken is worse than what we have right now. Too-big-to-fail banks restored to health are too-big-to-fail banks restored to power. The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.
http://interfluidity.powerblogs.com/posts/1237877649.shtml
He goes on to explain just why the Blackrock and PIMCO may be willing to put their own money at risk.
Welcome to the nightmare.
The problem with the Geitner/Summers plan (at least as I’ve read it) is that even if it doesn’t “work”, the investors aren’t out anything. Sure, up front the .gov puts up some money and they put up some money (equal amounts). Makes sense. Then the idea is to let the private side sort out the good investments from the bad, which (at least in theory and when it’s in their own best interests to do so) they are supposed to be fairly good at…and this also makes sense. It’s the fact that (at least according to what I’ve seen) if the private side makes a good call as to which assets were good or bad, they keep the money. If they make the wrong call, the .gov “insures” them against losses. More of the same “privatize the gains, socialize the losses” BS we’ve been dealing with since the sh*t started to hit the fan…not to mention the disincentive for actually making the right f***ing call on which are the best of the bad apples (assets) in the first place. Risk it all…you’ll win big or Uncle Sucker (and all us little suckers) will bail you out again. Here we go, financing another adventure (as Jon Stewart so aptly nailed it).
The problem with the Geitner/Summers plan (at least as I’ve read it) is that even if it doesn’t “work”, the investors aren’t out anything. Sure, up front the .gov puts up some money and they put up some money (equal amounts). Makes sense. Then the idea is to let the private side sort out the good investments from the bad, which (at least in theory and when it’s in their own best interests to do so) they are supposed to be fairly good at…and this also makes sense. It’s the fact that (at least according to what I’ve seen) if the private side makes a good call as to which assets were good or bad, they keep the money. If they make the wrong call, the .gov “insures” them against losses. More of the same “privatize the gains, socialize the losses” BS we’ve been dealing with since the sh*t started to hit the fan…not to mention the disincentive for actually making the right f***ing call on which are the best of the bad apples (assets) in the first place. Risk it all…you’ll win big or Uncle Sucker (and all us little suckers) will bail you out again. Here we go, financing another adventure (as Jon Stewart so aptly nailed it).
I’m concerned with this one as well, have a bad feeling we the taxpayers, Uncle Sucker will end up footing the bill for other people’s profits. If your fear of nationalization is fed by the naked short sellers, I say fix the bear runners. There’s a lot of stuff I’m hearing that’s a problem because of current legislation (for example, The Fed doesn’t have to tell anyone what they’re doing with the TARP), to which I say — change the legislation. We’ve created laws that are currently contributing to our problems, and this time is perfect to fix them.
I’m concerned with this one as well, have a bad feeling we the taxpayers, Uncle Sucker will end up footing the bill for other people’s profits. If your fear of nationalization is fed by the naked short sellers, I say fix the bear runners. There’s a lot of stuff I’m hearing that’s a problem because of current legislation (for example, The Fed doesn’t have to tell anyone what they’re doing with the TARP), to which I say — change the legislation. We’ve created laws that are currently contributing to our problems, and this time is perfect to fix them.
My last comment on the OctoRush thread would fit here two. Team Obama are trying their luck with a relatively ‘soft landing’ scenario in which the stimulus plus public-private partnership approach to refloating the credit balloon help us all muddle through to a recovery.
Krugman is flat-out predicting the worse scenario many of us fear, in which those strategies don’t make any real difference.
The funny thing, Jon, is that Krugman is singing the “interregnum” tune here, while you are singing the Team Obama rally song: “Signed, Sealed, Delivered.”
My last comment on the OctoRush thread would fit here two. Team Obama are trying their luck with a relatively ‘soft landing’ scenario in which the stimulus plus public-private partnership approach to refloating the credit balloon help us all muddle through to a recovery.
Krugman is flat-out predicting the worse scenario many of us fear, in which those strategies don’t make any real difference.
The funny thing, Jon, is that Krugman is singing the “interregnum” tune here, while you are singing the Team Obama rally song: “Signed, Sealed, Delivered.”
Alex, you must have heard the one about the guy who was stopped by a cop for carrying a loaded elephant gun around in the heart of the city. Cop asked him why he was carrying it, answer was “To keep the wild elephants away.” Cop says, “There’s not a wild elephant within 5,00 miles of here.” Says the gunman, “See? It works, doesn’t it!”
And of course enough monkeys with typewriters eventually reproducing all of Shakespeare.
Causation? Corellation? Truth?
Alex, you must have heard the one about the guy who was stopped by a cop for carrying a loaded elephant gun around in the heart of the city. Cop asked him why he was carrying it, answer was “To keep the wild elephants away.” Cop says, “There’s not a wild elephant within 5,00 miles of here.” Says the gunman, “See? It works, doesn’t it!”
And of course enough monkeys with typewriters eventually reproducing all of Shakespeare.
Causation? Corellation? Truth?
Atrios summed it up best I believe:
“If Timmeh is wrong about the ponies in Big Sh!tpile then it’s Mad Max for all of us.”
Atrios summed it up best I believe:
“If Timmeh is wrong about the ponies in Big Sh!tpile then it’s Mad Max for all of us.”
So, just exactly where does all that federal money come from?
So, just exactly where does all that federal money come from?
So, just exactly where does all that federal money come from?
JT, don’t you know about the secret printing presses in North Korea and Libya and Iran that churn out nearly perfect counterfeit US legal tender by the billions every day?
And of course there are the several US After-Dinner Mints that busily print those crinkly sheets of $1,000 bills that end up carrying a significant amount of the world’s cocaine embedded in their pores, along with the sweat from the wallets and money clips appended to so many masculine butts, and porky fingers reeking of cigar smoke. Here’s a compendium of thoughts on the subject of credit, and a bit of aged doggerel that explains it all, courtesy of that old and long-deceased cynic, Alexander Pope, who actually read the human heart:
Blest paper-credit! last and best supply!
That lends corruption lighter wings to fly!
Gold imped by thee can compass hardest things,
Can pocket states, can fetch or carry kings;
A single leaf shall waft an army o’er,
Or ship off senates to a distant shore;
A leaf, like Sibyl’s, scatter to and fro
Our fates and fortunes, as the winds shall blow:
Pregnant with thousands flits the scrap unseen,
And silent sells a king, or buys a queen.
Oh! that such bulky bribes as all might see,
Still, as of old, encumbered villainy!
Could France or Rome divert our brave designs,
With all their brandies or with all their wines?
What could they more than knights and squires confound,
Or water all the Quorum ten miles round?
A statesman’s slumbers how this speech would spoil!
“Sir, Spain has sent a thousand jars of oil;
Huge bales of British cloth blockade the door;
A hundred oxen at your levee roar.”
Poor Avarice one torment more would find;
Nor could Profusion squander all in kind.
Astride his cheese Sir Morgan might we meet;
And Worldly crying coals from street to street,
Whom with a wig so wild, and mien so mazed,
Pity mistakes for some poor tradesman crazed.
Had Colepepper’s whole wealth been hops and hogs,
Could he himself have sent it to the dogs?
That’s where. And of course out of the pockets of people who actually create tangible, valuable Real Wealth. Unto the third and fourth generations.
JT, don’t you know about the secret printing presses in North Korea and Libya and Iran that churn out nearly perfect counterfeit US legal tender by the billions every day?
And of course there are the several US After-Dinner Mints that busily print those crinkly sheets of $1,000 bills that end up carrying a significant amount of the world’s cocaine embedded in their pores, along with the sweat from the wallets and money clips appended to so many masculine butts, and porky fingers reeking of cigar smoke. Here’s a compendium of thoughts on the subject of credit, and a bit of aged doggerel that explains it all, courtesy of that old and long-deceased cynic, Alexander Pope, who actually read the human heart:
Blest paper-credit! last and best supply!
That lends corruption lighter wings to fly!
Gold imped by thee can compass hardest things,
Can pocket states, can fetch or carry kings;
A single leaf shall waft an army o’er,
Or ship off senates to a distant shore;
A leaf, like Sibyl’s, scatter to and fro
Our fates and fortunes, as the winds shall blow:
Pregnant with thousands flits the scrap unseen,
And silent sells a king, or buys a queen.
Oh! that such bulky bribes as all might see,
Still, as of old, encumbered villainy!
Could France or Rome divert our brave designs,
With all their brandies or with all their wines?
What could they more than knights and squires confound,
Or water all the Quorum ten miles round?
A statesman’s slumbers how this speech would spoil!
“Sir, Spain has sent a thousand jars of oil;
Huge bales of British cloth blockade the door;
A hundred oxen at your levee roar.”
Poor Avarice one torment more would find;
Nor could Profusion squander all in kind.
Astride his cheese Sir Morgan might we meet;
And Worldly crying coals from street to street,
Whom with a wig so wild, and mien so mazed,
Pity mistakes for some poor tradesman crazed.
Had Colepepper’s whole wealth been hops and hogs,
Could he himself have sent it to the dogs?
That’s where. And of course out of the pockets of people who actually create tangible, valuable Real Wealth. Unto the third and fourth generations.
JT, don’t you know about the secret printing presses in North Korea and Libya and Iran that churn out nearly perfect counterfeit US legal tender by the billions every day?
And of course there are the several US After-Dinner Mints that busily print those crinkly sheets of $1,000 bills that end up carrying a significant amount of the world’s cocaine embedded in their pores, along with the sweat from the wallets and money clips appended to so many masculine butts, and porky fingers reeking of cigar smoke. Here’s a compendium of thoughts on the subject of credit, and a bit of aged doggerel that explains it all, courtesy of that old and long-deceased cynic, Alexander Pope, who actually read the human heart:
Blest paper-credit! last and best supply!
That lends corruption lighter wings to fly!
Gold imped by thee can compass hardest things,
Can pocket states, can fetch or carry kings;
A single leaf shall waft an army o’er,
Or ship off senates to a distant shore;
A leaf, like Sibyl’s, scatter to and fro
Our fates and fortunes, as the winds shall blow:
Pregnant with thousands flits the scrap unseen,
And silent sells a king, or buys a queen.
Oh! that such bulky bribes as all might see,
Still, as of old, encumbered villainy!
Could France or Rome divert our brave designs,
With all their brandies or with all their wines?
What could they more than knights and squires confound,
Or water all the Quorum ten miles round?
A statesman’s slumbers how this speech would spoil!
“Sir, Spain has sent a thousand jars of oil;
Huge bales of British cloth blockade the door;
A hundred oxen at your levee roar.”
Poor Avarice one torment more would find;
Nor could Profusion squander all in kind.
Astride his cheese Sir Morgan might we meet;
And Worldly crying coals from street to street,
Whom with a wig so wild, and mien so mazed,
Pity mistakes for some poor tradesman crazed.
Had Colepepper’s whole wealth been hops and hogs,
Could he himself have sent it to the dogs?
That’s where. And of course out of the pockets of people who actually create tangible, valuable Real Wealth. Unto the third and fourth generations.
Our kids kids.
Our kids kids.
One of my kids, when he was about eight, said to me, “Dad, I am my shadow’s shadow…”
One of my kids, when he was about eight, said to me, “Dad, I am my shadow’s shadow…”
One of my kids, when he was about eight, said to me, “Dad, I am my shadow’s shadow…”
Lay off Taplin you guys. He’s love-struck on Obama–who can do no wrong.
Lay off Taplin you guys. He’s love-struck on Obama–who can do no wrong.
Lay off Taplin you guys. He’s love-struck on Obama–who can do no wrong.
Uhm, why would PIMCO invest millions in bank securities? Barry has a pretty good explanation up over on The Big Picture. Follow the money. If the banks go tits-up, then their bondholders take a huge loss. What is going to keep the banks from going under? Getting marked-up prices for their worthless assets. So PIMCO buys 50 million of worthless crap. The federal government bumps that up to 400 million total. The banks get a massive cash infusion and don’t go under. PIMCO takes a 50 million loss, but protects billions in bond investments. And, we the tax-payers, tax the 350 million dollar loss on the worthless crap be bought. Only we don’t have billions in bonds we’re trying to protect.
Uhm, why would PIMCO invest millions in bank securities? Barry has a pretty good explanation up over on The Big Picture. Follow the money. If the banks go tits-up, then their bondholders take a huge loss. What is going to keep the banks from going under? Getting marked-up prices for their worthless assets. So PIMCO buys 50 million of worthless crap. The federal government bumps that up to 400 million total. The banks get a massive cash infusion and don’t go under. PIMCO takes a 50 million loss, but protects billions in bond investments. And, we the tax-payers, tax the 350 million dollar loss on the worthless crap be bought. Only we don’t have billions in bonds we’re trying to protect.
Martin Wolf weighs in on PIPP. He’s not impressed. I’m not either. Despite the AIG dust storm, the casino operators clearly won this round. This isn’t rhetorical; can anyone tell me why their “toxic assets” are our concern?
http://www.ft.com/cms/s/0/1bdc2a28-1890-11de-bec8-0000779fd2ac.html?nclick_check=1
Quick note to Team O: Barry’s burnin’ capital. Show some restraint.
Martin Wolf weighs in on PIPP. He’s not impressed. I’m not either. Despite the AIG dust storm, the casino operators clearly won this round. This isn’t rhetorical; can anyone tell me why their “toxic assets” are our concern?
http://www.ft.com/cms/s/0/1bdc2a28-1890-11de-bec8-0000779fd2ac.html?nclick_check=1
Quick note to Team O: Barry’s burnin’ capital. Show some restraint.
So much for the Interregnum…
http://tpmmuckraker.talkingpointsmemo.com/2009/03/wall_street_to_washington_i_want_my_campaign_contr.php
So much for the Interregnum…
http://tpmmuckraker.talkingpointsmemo.com/2009/03/wall_street_to_washington_i_want_my_campaign_contr.php
W/S,
Two noteworthy quotes from your link:
“…the nation’s ever-heightening awareness that their industry engineered the ever-intensifying economic morass.”
“In other words, Wall Street to Washington: We’re back.”
Yup. The casino operators won. Back to livin’ large – with impunity!
W/S,
Two noteworthy quotes from your link:
“…the nation’s ever-heightening awareness that their industry engineered the ever-intensifying economic morass.”
“In other words, Wall Street to Washington: We’re back.”
Yup. The casino operators won. Back to livin’ large – with impunity!
W/S,
Two noteworthy quotes from your link:
“…the nation’s ever-heightening awareness that their industry engineered the ever-intensifying economic morass.”
“In other words, Wall Street to Washington: We’re back.”
Yup. The casino operators won. Back to livin’ large – with impunity!
WAY to much money – WAY to much power over congress and the white house…
And the rest of us can eat cake…
WAY to much money – WAY to much power over congress and the white house…
And the rest of us can eat cake…
WAY to much money – WAY to much power over congress and the white house…
And the rest of us can eat cake…