I have a few problems with Jane Hamsher’s latest piece on Tim Geithner, where she says, among other things:
Timothy Geithner’s new TALF plan, like all his other plans, seems designed to shovel billions into the coffers of the very same bankers who got rich on the mortgage bubble. When the public gets a glimpse of the tip of this giant iceberg, as they did with the AIG bonuses, they’re dismissed as angry rubes who Just Don’t Understand How Things Work. But his latest scheme is proof that they are absolutely right.
It’s going to take a little bit of effort to explain why her analysis upsets me. Let’s start off with the fact that right at the top she identifies the ‘new TALF plan’ as the topic under discussion. But she then immediately moves to discussion of former Countrywide executive Stanford Kurland. Now, Mr. Kurland, who was recently profiled in the New York Times, is someone we would all like to see in prison. No mortgage lender was more irresponsible in vetting their customers than Countrywide. Their lending practices were lax, involved fraud, and contributed massively to the foreclosure crisis and the ensuing economic meltdown. Mr. Kurland walked away from this mess with $200 million in stock and has now set himself up as CEO of a new company that is profiting by buying up (at a steep discount) the same bunk mortgages that his company created.
PennyMac, whose full legal name is the Private National Mortgage Acceptance Company, also received backing from BlackRock and Highfields Capital, a hedge fund based in Boston. It makes its money by buying loans from struggling or failed financial institutions at such a huge discount that it stands to profit enormously even if it offers to slash interest rates or make other loan modifications to entice borrowers into resuming payments.
Its biggest deal has been with the Federal Deposit Insurance Corporation, which it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon. PennyMac’s payment was the equivalent of 38 cents on the dollar, according to the full terms of the agreement.
This PennyMac company is actually doing something of a public service by helping refinance these balloon-payment loans and preventing the spread of the foreclosure crisis. But that doesn’t change the outrageous situation where Mr. Kurland gets rich on both ends of this financial crisis. But, rather than get bogged down in the fairness of this whole thing, let’s focus on the fact that Mr. Kurland bought these mortgages from the FDIC as part of an effort the clean up the books of First National Bank of Nevada. Is that part of Tim Geithner’s TALF plan that he rolled out today? No, it is not. It is actually part of an actual case of bank nationalization. The FDIC stepped in and nationalized the First National Bank of Nevada and, as part of cleaning up its books, it sold off a bunch of their toxic mortgages to Mr. Kurland’s company. Ms. Hamsher is taking an example of bank nationalization and using it to criticize Secretary Geithner for coming up with a plan that does not do bank nationalization. Watch what Jane does next:
Despite Geithner’s contention that banks are simply “burdened with bad lending decisions,” most Americans understand at this point that there was serious fraud involved in the inflation of the mortgage bubble. The Justice Department and the FBI are currently investigating Countrywide for accounting fraud, insider trading and consciously lending money to people they knew couldn’t afford to repay it. Meanwhile, AIG is suing Countrywide because they have to pay off hundreds of millions of dollars in insurance claims because Countrywide just flat out lied about the mortgages they were issuing…
The first thing that strikes me about this paragraph is that it acknowledges that Countrywide (and presumably, Mr. Kurland) are currently under investigation by the Justice Department and the FBI for multiple violations of the law. They are also being sued by AIG and, as the New York Times makes clear, they are also being sued by several other entities:
But lawsuits against Countrywide raise questions about Mr. Kurland’s portrayal of his role. They accuse him of being at the center of a culture shift at Countrywide that started in 2003, as the company popularized a type of loan that often came with low “teaser” interest rates and that, for some, became unaffordable when the low rate expired.
The lawsuits, including one filed by New York State’s comptroller, say Mr. Kurland was well aware of the risks, and even misled Countrywide’s investors about the precariousness of the company’s portfolio, which grew to $463 billion in loans, from $62 billion, three times faster than the market nationwide, during the final six years of his tenure.
Far from letting Mr. Kurland off the hook, multiple state and federal agencies are hot on his trail. Given that, though, we have a right to ask why the FDIC was willing to do business with a man who is under such a cloud. Their answer is telling.
Federal banking officials — without mentioning Mr. Kurland by name — added that just because an executive worked at an institution like Countrywide did not mean he was to blame for questionable lending practices. They said that it was important to do business with experienced mortgage operators like Mr. Kurland, who know how to creatively renegotiate delinquent loans.
We’re back to the root of the problem with trying to fix the economic meltdown without unjustly rewarding the people that created it. There is a limited universe of people with both the experience and the capital to buy up and manage the toxic assets. The more money people made off creating this misery, the more likely they are to be flush enough with cash to take risks on fixing it. Secretary Geithner is relying on public private financing to take up some of the slack and a modicum of the risk, but a big percentage of the public private financing available is tainted in some way, providing critics with slam-dunk avenues to whip up outrage. Nevertheless, Mr. Kurland could just as easily wind up in prison as make a new fortune off this mess. Consider this when reading Ms. Hamsher’s next point:
Stanford Kurland and the Countrywide Crew have never been held to account for their part creating this financial crisis, and now Geithner’s plan makes them rich all over again. Geithner seems to believe that there is an elite class of bankers in this country who must make money no matter what happens, who should never be held to account, and whose interests should always come first in any plan the government devises.
First, Mr. Kurland is under active investigation by (among others) the Obama Justice Department, so he could still be held to account. Second, Mr. Geithner’s plan (TALF) has nothing to do with making Mr. Kurland ‘rich all over again’. Third, it isn’t Geithner who determines that elite bankers benefit coming and going, but the reality of a situation where the only people with private capital available to partner with the government are people that got rich over the last decade and didn’t lose all of their money in the downturn. And that means that people that bet against the housing bubble or who managed to get out just in time are the people who stand to get rich now in helping to solve the problem.
Jane concludes:
Do you get a chance to make money in this “off-the-charts good” investing opportunity? Noooo, these loans that nobody has to pay back aren’t being offered to the public.
The public understands what’s going on all too well. The same thieves are back again to pick their pockets in broad daylight, thanks to the tireless efforts of Timothy Geithner on their behalf.
Again, the ‘off-the-charts good investment opportunity’ that Jane is referring to is not TALF, but the buying up of toxic assets from a nationalized bank administered by the FDIC. That’s exactly the kind of arrangement that so many on the left are urging on Geithner. The reason you and I are not being offered sweetheart deals to buy toxic assets in either the nationalization process or the TALF process is not because Tim Geithner wants to screw us, but because we don’t have the money to buy them. In reality, any of us can start a hedge fund and be eligible to participate if we can convince other people to let us manage their money. And, finally, it isn’t Geithner’s or the FDIC’s choice (because they have no other options) to let the thieves pick our pockets again (if that is even a fair characterization). That decision is thrust upon them by reality, whether they are nationalizing or not.
I don’t write this to pick on Jane Hamsher. But I did find her essay to a good example of the ways people are picking up a general and justified sense of outrage and distorting the facts to make Tim Geithner look bad. His plan can and should be critiqued, but a good critique uses fair arguments. I don’t think Jane’s argument was fair.
I still think the “No Right Price” problem is a fair critique of why the plan won’t work.
Jane may be flying off the handle, but she has a right to be angry. The problem isn’t that the assets are undervalued. The problem is that the assets exist in the first place. They were allowed to be created due to greed and a specific lack of oversight on collateralized debt obligations.
It’s still gambling with taxpayer money, and heads the banksters win, tails the taxpayer loses.
Why does Jane have a right to mislead her readers because she is mad? In fact, Geithner’s plan is an attempt to reduce the amount of money to be made by people like Kurland and save taxpayer money, yet it is being viciously attacked by Jane and others who are not being honest about the grounds of their attack.
Not saying that Jane is right. Just saying that I can understand why she is angry.
I’m angry too – but it doesn’t help me if Jane and other “progressives” are trying to assist the Republicans instead of providing some clarity.
They’re simply trying to save taxpayer money you say? Ha!
http://zerohedge.blogspot.com/2009/03/amazing-talf-bait-and-switch.html
We are a nation of hucksters.
The zerohedge argument is utterly bogus. It’s equivalent to arguing that “theycould take the money, say that they bought an asset, and spend it on cocaine.”
No. It’s more akin to pointing out that the system is set up to encourage (or incentivize, to use their own language) the use of cocaine. And one thing we’ve learned is that if the regulators step back and allow loopholes the playas will take advantage. In other words, you put a big pile of cocaine on a table and allow a bunch of bankers to make what ever decision the want without any strings attached my bets on the bankers snorting that coke up faster than George. W. and Obama on spring break. To be arguing that we should ignore a rigged system where the taxpayer gets screwed but hedgies and investment banks make off like bandits is precisely what got us in this fix in the first place.
And you are trying to sell this rigged system for something it’s not: as a vehicle for the public good when all it is is another cocaine delivery system for a patient that is suffering from too much cocaine.
I would be less worried about bloggers not toeing the Obama company line and a little more worried that your Dear Leader has evidently decided to inexorably link the Democratic party with supply-side Reaganomics and take responsibility for the inevitable consequences of a 25 year binge brought upon us by conservatives Democrats and Republicans alike. This sucker is gonna blow indeed and the Democrats are rushing in to own the damage and are actually making the Republican supply-side argument! Good luck with that.
I’m sorry, but if you expected Obama to abolish banking and finance capital, you were very confused. The problem with the zerohedge argument is that, given the confines of capitalism and law, it is dishonest to argue that a government policy to keep the banking system afloat might be targeted by illegal fraud schemes and is therefore evil. There is no possible action by any government to deal with the banking crisis that is not subject to exactly the same criticism.
I’m afraid the misunderstanding is yours. Zero Hedge is not describing fraud, he is describing how the system is set up to work. In fact, the system is being set up precisely for the purpose of “unfreezing” the markets and thus one of the supposed benefits of this government welfare to the bankers is that they will start trading these assets again. They are supposed to game the system. That’s evidently what we need to unfreeze.
Btw, I love the class warfare embedded in your response–how those opposed to the Obama bankster bailouts are opposed to the very existence of private capital, i.e. SOCIALISTS.
Sigh. Zerohedge outlines a way in which an investor participating in the program could commit multiple felonies to attempt to game the system and concludes that the intent of the plan is to encourage such criminal activities. If you think that Geithner and Obama are engaged in a criminal enterprise, then the details of plans are irrelevant and you could save everyone a lot of trouble by just stating that as a premise upfront. If you do not start with such a premise, then Zerohedge’s scenario is utter crap.
Do you have a statute to cite? A legal opinion? Precedent? I don’t think it’s as obvious as you assume that a crime would be committed under these circumstance.
And since you’re so quick to categorize this as fraud I’m sure you think there were multiple felonies committed when the banksters securitized these things and sold them in the first instance?
The program is set up so that the asset is purchased by the private investor in partnership with the government. Each owns some percentage. The managing partner of a joint asset is not entitled to get a private kickback for selling the asset at to a third party. The managing partner of an asset is not entitled to collude with a seller to defraud the passive partner.
There are, in fact, criminal investigations going on right now on loan originators, securitizers, and swap sellers. Obviously, neither the Bush nor Clinton administrations were interested in enforcing the laws.
It may be that Obama is not either, in which case the scam outlined by zero is the least of our worries.
Thanks for this. I appreciate this kind of clarity, BooMan.
agree completely. am so sick of fuzzy thinking and discounting Obama’s economics people via guilt by association. seems the word “nationalize” is being bandied about as if the word alone will solve the problems.
Careful. You might get tagged as a Hope Zombie.
that’s ok, I can take it!!!
The use of Mr. Kurland as the whipping boy was incorrect. I doubt you’d have to look very hard, however, to find someone to take his place and Jane’s argument would stand up pretty well. It’s not the argument that was unfair. It was the use of Mr. Kurland that was unfair.
And maybe not even unfair. Misdirected, perhaps? Misleading? Not really.
consider the following:
TALF is what is being critiqued, right?
People wanted nationalization and instead they got TALF. TALF is bad because it allows bad guys to profit while, presumably, nationalization would not.
How does Jane’s argument stand up, then?
Her example demonstrates that nationalization does not avoid the problem she seems to think it would.
Point taken. I suppose I’ve reached the point where I don’t believe that TALF, TARP, Resultion Trusts, Nationalization or any other policy, program or fantasy is going to prevent the reckoning for the last 30 years of utter fiscal insanity. When the implosion happens and the dust clears I fully expect that much of our financial and political elite will be holed up in the Hamptons or the Caymans behind moats and walls guarded by Blackwater while the rest of us are saddled with debts and various forms of terrorists–from ideological/religious fanatics of all stripes to those of the narco variety. Just call me “Doomer.”
“TALF is bad because it allows bad guys to profit while, presumably, nationalization would not.”
Didn’t you just do a post about a hedge funder that bought up nationalized IndyMac?
yes, I did.
Mr. Paulson bet against the housing bubble and made billions. Then he used that money to become a major partner in buying up IndyMac, which had been nationalized.
exactly right: nationalization is not an end-point. Nationalization advocates call it “pre-privatization”. As long as the overall system remains capitalistic, there will always be capitalists winning as an economic downturn ends. The alternative is permanent state ownership. Noone, except perhaps Galbraith, openly advocates that, as far as I can tell.
If we are going to complain about the corporate media’s inability to do their research to find out what is going on, we should insist that the influential blogs in left blogistan do the same.
We need some firsthand investigative reporting, and we are not getting it because those who understand finance can look at the situation squarely and those who are reporting are shooting from the hip.
The best coverage so far is from Marcy Wheeler. Unfortunately, at this point, “the best coverage” means asking the best question based on solid documentary research from primary and secondary sources. No complaint here. Marcy’s outworking everyone else who has taken on this beat.
I don’t know if you’re right or jane’s right.
I know only one thing for certain: every entity involved with this crisis, from the banks, the regulators (or lack thereof), and the congress has so thoroughly squandered their credibility that no one believes a thing any of these parties say anymore.
for example, regardless of whether you agreed with the way the bailout was handled or not (and i realize we differ on this), it is beyond dispute that watching senate and house outrage at the way AIG spent its TARP dollars is an exercise in outrage itself, CONSIDERING THEY DELIBERATELY AVOIDED MANDATES AND REPORTING REQUIREMENTS. the political theatre itself makes them lose credibility.
I’m done.
If you are not sure who’s right, then I haven’t done my job.
Her essay very directly implicates Geithner in a deliberate scheme to enrich Kurland through the TALF program. Her problem with the TALF program is clearly that it doesn’t go straight to nationalization but allows the thieves to benefit through subsidized loans, etc.
The problem is that her example has nothing to do with TALF and involves an example that is precisely what she is urging instead of TALF…namely, nationalization.
But, in this case of nationalization, the toxic assets were sold at 38 cents on the dollar to a guy who created the problem.
I hope you can see the truck-sized holes in her argument as well as it’s total unfairness to Geithner.
Honestly Boo?
I don’t care what the rationales are anymore.
I don’t believe a word that comes out of anyone’s mouth on the economic crisis, with very very very few exceptions. I am spun out, and I don’t think ANYONE involved has a lick of credibility. Not Tim Geithner. Not Barack Obama. Not the Democrats. Certainly not the Republicans.
Like I said, I’m done.
As long as you can follow my argument, I’m satisfied.
i can follow your argument fine, but what authority do you have to make it? for that matter, what authority do i have to reject or support it? what authority does jane have to make her argument?
why should i believe you, or jane, or any of these people? for that matter, why should i believe geithner and summers, given their history?
it’s a serious question.
and another question: if hamsher is wrong, as you suggest, why does atrios (who knows a thing or two about economics and has been ahead of the news for months) link to that same article approvingly?
It’s another serious question: atrios is one of the only people I actually trust when it comes to the crisis.
Duncan excerpted the last part about how you and I are not going to be getting subsidized loans to buy toxic assets. He doesn’t like that aspect of TALF. That’s why he linked to it. But he doesn’t address whether the rest of the post has anything to do with TALF.
Isn’t atrios consistently excoriating Tim Geither? And hasn’t he linked, approvingly, to jane several times over the past couple of weeks/months specifically for TARP and economic crisis?
I don’t want to take his stuff out of context, but given that he has never (to my memory) had a kind word for geithner’s “plan”, I’d be willing to bet it’s not just the TALF component he objects to.
krugman says it’s the same plan as the old plan, which was the same as the old plan, which paulson abandoned.
maybe I’m being unfair, but I’m just not buying it anymore.
you should believe me because I provided links and/or blockquotes to justify pretty much every point I made. If you have a question about whether the deal was done through the FDIC or TALF, or if the Bank of Nevada was nationalized, or any other element of my case, you should be able to verify it through the documentation I provided. If not, just ask me.
…and therein lies the crux of the problem. Regardless of anything the government does, who has any credibility? How do you build a financial system on a swamp of mistrust? It’s not a simple matter of liquidity or insolvency or regulation. It’s at once an indictment of both our financial ideology and our political system. We’re fast approaching a political crisis with these bailouts. It won’t matter whether or not what they’re doing is the “right” thing or even the “only” thing. There is nothing much left to believe in. I think I’ll go back to “sex, drugs and rock-and-roll.” It didn’t require any thought and precious little hope.
I’ve come to the conclusion that the economic bailout plan is nothing more than a plot to increase the likelihood that I will sustain a concussion from banging my head against the wall at regular intervals throughout the day.
Log walls are hard…very hard.
Here’s what nationalization looks like.
The criticism I am waiting to hear is that no one is talking about the Fed itself as a source of these issues.
It’s very design is analogous to the debt derivatives market that created the ocean of debt we’re swimming in, so why not ‘fix’ the system for real and stop putting the Fox in charge of the hen house: the Federal Reserve Banks are owned by Member Banks, so by not changing this status quo, we’re going back down the road of self-regulation once again.
” The reason you and I are not being offered sweetheart deals to buy toxic assets in either the nationalization process or the TALF process is not because Tim Geithner wants to screw us, but because we don’t have the money to buy them. “
Do you know if in the TALF process pensions funds can buy in? I thought I read that somewhere?
Yup:
Boo: this might be of interest to you. It helped me see both sides a little clearer(pdf):
http://www.brookings.edu/~/media/Files/rc/papers/2009/0225_bank_nationalization_elliott/0225_bank_na
tionalization_elliott.pdf
that’s a thoughtful and helpful study. Thanks for the link.
I thought bringing up Countrywide’s CEO was an odd segue considering that today’s topic is Geithner’s plan. There’s far too much dust being raised by the traditional media, and far too much back and forth between economists on the plan, that there’s no reason to start throwing feces at a guy who is not related to the plan.
I don’t know if people have seen this, but they should go look at that link. The problem is not and never has been the actual mortgage debt. It’s always been about the derivative bets placed on top of the mortgage debt that has so screwed the banks and our banking system.
(Confession: I’ve referred to derivative bets like CDSs to be “assets,” which is why I continue to insist that a lot of the banks’ assets are worthless. But apparently everyone else refers to them as “liabilities,” I guess because so many banks were counterparties to hedge fund bets against the mortgages. Regardless of who is paying and who is collecting, I still contend that these bets are worthless.)
Nice work. A bit on the ex-chief’s legal troubles:
And who knows what will turn up as they go through discovery on those cases?
I’m not entirely sure what you’re saying but I’ll take a stab.
To the extent that I mentioned TALF, I probably should have more appropriately said Geithner’s PPiP/TALF/FDIC plan announced today. But I don’t think that’s your issue — I think we’re both talking about the public-private investment aspect of the plan.
My point was that Geithner’s plan was written to draw in the investments of companies like PNMAC. Since today is the first day that applications can be accepted for the Geithner plan, it ought to be self-evident that nobody has engaged in this specific business before.
Blackrock stock is up 18% today on the announcement that it will participate in Geithner’s plan. Blackrock is one the partners that formed Kurland’s PNMAC. Is it your contention that Geithner was not trying to lure the money of Kurland and others who are already engaged in the business of buying distressed mortgages up? Because if you’re betting that Kurland will be firewalled and have nothing to do with this endeavor, I will most certainly take that bet.
I’m glad you showed up, Jane, and I want to assure you that my critique is substantive and not personal.
Let me spell out what I am getting at so you can address it.
I understand when you say you could have been a little more precise, so I don’t want to harp on any lack of precision. But we can’t ignore it altogether because it is a key aspect of my critique.
Let me try to get us to stipulate up front that the debate has been largely one of whether we should nationalize the megabanks (usually conceived as something along the lines of Continental Illinois or the Swedish model) or whether we should try the Geithner Plan. A lot of criticism has been developed of the Geithner Plan and there is a presumption that nationalization would minimize or avert the downsides and risks of the Geithner Plan.
Much of my writing on this has not been in defense of the Geithner plan per se but in criticism of the ways his plan is being attacked. This article is no different.
You took an example of a bank that had been nationalized (taken over by the FDIC) and then seen its toxic mortgages sold to PennyMac for .38/dollar. If you are urging nationalization as the alternative to Giethner’s Plan, as I believe you are, then it is strikingly inappropriate to use this particular example to make your case. Why? Because the selling of First National Bank of Nevada’s assets to PennyMac was a perfect example of what nationalization looks like. It’s isn’t Geithner’s Plan, it is the alternative to his plan.
In other words, we cannot avoid the situation where assholes are the only people available to buy up this crap. They are who we will need to turn to whether we nationalize or whether we don’t. Either way, they will get sweetheart financing and the opportunity to make a lot of money at little risk. That is a very frustrating situation, but it isn’t an argument for or against Geithner’s Plan or for or against nationalization. It just is.
I could go on. I could mention the situation with IndyMac where nationalization cost us $10.7 billion alone, or point out that the FDIC program with Nevada is part of the effort to help out distressed mortgage-holders. But those are side issues.
For the record and for clarity, I am not opposed to nationalizing insolvent banks or a rock-solid supporter of Geithner’s Plan. I hate that people are going to benefit no matter what we do when some of them should be in jail. But I want criticism of Geithner to be fair and I didn’t think your piece was fair to him.
Best,
M.
Let’s break this down — If I made a mistake of precision referring to TALF instead of TALF/PPiP/FDIC, you made the same mistake I believe? I offered that up for clarity, not because you had any reason to “harp” on it.
Yes?
I’m not exactly sure what you are getting at.
Let me give it a try and if I miss the mark just let me know and please don’t hold it against me.
I think you are saying that if you had referred not to TALF alone but had also included the FDIC portion of today’s plan that you would have been more precise or accurate. Is this correct?
If so, then I don’t agree. I’m hesitant to go on too long explaining why because I might be misinterpreting you. So, I’ll be brief and expand if need be.
If you look at the FDIC portions of the Geithner Plan they have nothing to do with what went on with PennyMac. Under the Geithner Plan, the FDIC conducts auctions, offers financing, and provides oversight.
The transaction you were using as an example was a straightforward wind-down of a bank nationalization of the type you are recommending in place of Geithner’s Plan. In other words, if we didn’t do Geithner’s Plan and instead had the FDIC take over Bank of America, they would still be selling toxic assets as steep discounts and offering risk offsets and/or sweetheart financing. And they would still be forced to deal with a finite group of eligible buyers that includes mostly people who profited on either the fraud or by shorting the housing bubble, or both.
In other words, your criticism is just as valid for a nationalization scheme as for Geithner’s Plan. In terms of who participates and how they are enticed to participate, there is no difference.
What might be different is how well it works and how much it ultimately costs. But that wasn’t your point.
Geithner announced a plan today. Agreed?
It had three components:
I was specifically addressing part #2, the PPiP. I assume when you say something like “Secretary Geithner is relying on
public financing
to take up some of the slack and a modicum of the risk,” that’s what you’re addressing too.
When you say:
you are referring to the “private” part of the “public-private investment” and using TALF as a shorthand for the same thing.
oh, okay.
Yes, I’m using ‘TALF’ as an umbrella for all three, as you suggest.
However, I don’t either my use of TALF or your use of TALF really caused any confusion.
At issue is the Geithner Plan vs. some nationalization plan advocated by Krugman and most of Left Blogistan.
The only alternative to that is that you have a third preference that you haven’t expressed.
No, the issue is giving money to the same people who got rich creating the mortgage crisis vs. not giving it to them.
If you could achieve the same thing by giving $2000 in stock to everyone in the country it wouldn’t be nationalization, and I’d probably be fine with that aspect of it.
There are substantive economic reasons why I don’t think Geithner’s plan will create a true market regardless of who owns the assets, but that actually isn’t the problem that I’m expressing in this post.
yeah, well, my point is that no matter what Geithner does he’s going to have to go hat-in-hand to (in significant part) the people that caused this mess and it isn’t because he likes them and wants to reward them but because they are the only people with the money to buy the crap.
But that is just the point … compared to the supposed present value of the “toxic assets” .. they are only being asked to put up very little .. basically they are being loaned most of the money by the Gov’t(as I understand it)
Calvin, I always like and value your comments.
I think we have to look at two distinct things here.
First, we have a lot of left-wing economists/bloggers who are concerned that the toxic assets are near worthless.
Second, we have a lot of left-winger bloggers that are upset about who will get rich fixing this problem.
These are separate concerns. If you oppose the Geithner Plan because you think it will fail, that’s one thing.
If you oppose the plan because of who will get rich, that’s another.
My point in this column and others is to show that the same people get rich no matter how we do this. The focus needs to be on whether it will work and not on who will get rich.
Atrios, for example, thinks the plan simply won’t work. I don’t criticize Atrios. Krugman thinks the plan won’t work. I don’t really criticize Krugman. Sirota and Hamsher don’t so much say the plan won’t work as argue that the plan is to loot the treasury to enrich their elitist banking friends. That’s where I get upset and call b.s.
Sirota and Hamsher don’t so much say the plan won’t work as argue that the plan is to loot the treasury to enrich their elitist banking friends. That’s where I get upset and call b.s.
Does it have to be that way? Meaning the rich are just going to get richer on this? They are obviously pissed because it is another example of “privatize the profits and socialize the losses”. I guess my question is, where do we go from here? If the government takes a big hit over this(meaning Wall Street makes out like bandits from the program), what happens then? Are people not going to take it out on the Democrats? I guess my problem is when are we gonna stop letting Wall Street loot the US Treasury?
Yes, it has to be that way. We want to get people to make an investment. The idea that they will make that investment without good assurances that they will make money off of it is naive.
But to get that big a subsidy? Hell, the lefty blogosphere should pool its money and start a hedge fund .. then we could all get rich off Uncle Sam
is there any reason we can’t do that? We absolutely should do that.
Secondly, you say this:
Where do I do that? At what point do I take up the subject of “nationalization?” Where do I criticize anyone for the failure to do implement it?
This is real a straw man extravaganza. There is nothing in this post that argues for or against nationalization, it’s a specific critique of the financial rewards of a particular plan. That’s it. If you want to debate someone on the virtues of this plan over nationalization, I suggest finding a post that addresses that argument.
Okay.
Are you saying that you are not in favor of nationalization? Are you not opposed to the TALF plan because it eschews the advice of countless pro-nationalization voices (Baker, Krugman, etc.) in favor of a plan that relies on hedge-fund managers and investment bankers?
You’ll have to help my out with your objection to TALF if isn’t related to the common criticisms of people you’ve been citing and hosting on a regular basis at firedoglake. I’m not trying to be a pain in the ass here, but I don’t see how it’s a strawman at all.
People mean many things when they use the term “nationalization,” which is why I almost never use it. I’ve said in the past that if we’re not considering nationalization simply because we’re accepting the right wing critique that it is “socialization,” that’s a stupid reason not to consider as something that might work. But I’m more concerned with making sure that whatever plan gets put forward doesn’t reward oligarchs and rip off ordinary people.
That’s all this post was about, and the fact that PennyMac’s activities up until now have been with the FDIC may be relevant to your argument, but it has nothing to do with my problem with the plan — which is that the people who got rich selling bad mortgages are going to get richer on the cleanup. I stand by what I think is a quite obvious point, that Geithner’s plan is a direct attempt to lure Blackrock/Kurland into the program, and I’d still be interested in taking that bet that Kurland will not soon be in it. (In fact, I’d be willing to bet he’s in it already, as the industry’s most experienced player in that market — they’ve evidently developed software for analyzing the underlying mortgages and determining their value that will be extraordinarily valuable).
Beyond that, you’d have to present a specific plan that represents “nationaliztion” for me to respond to before I think it’s fair to attribute an opinion to me. The devil, as they say, is in the details.
Okay.
Let me clarify then…
I’m with you 100% in not wanting to see oligarchs benefit from problems they created or to get rich off taxpayer subsidized financing, etc.
My main difference is that I am arguing that to a very significant degree this downside to the financial crisis is unavoidable. Now, Kurland might wind up getting indicted next week. A crook is a crook and crooks that actually broke laws (as opposed to exploiting the lack of them) are in real jeopardy in this political environment. Yet, you could be right that he will be allowed to bid in Geithner’s Plan. The two issues are not really related. They could exclude him but they’d need more reason than suspicion of a crime.
The problem is that people like Kurland are in the best position to buy this stuff both because they have lots of new money and because they understand this stuff and are in the business already. If not Kurland then Paulson. If not Paulson, some other former CEO or hedge-fund manager or Goldman Sachs executive.
And, I guess my point to you is that as much as we might dislike this situation or wish things were different, it’s not a valid reason to accuse the Treasury Secretary of deliberately looting the treasury to enrich his friends. Geithner can be criticized but not this way. I don’t think it is fair and so I said so.
Intellectual laziness and sloppiness aside, I think there are two main sources of motivation for the pro-nationalization argument. There are the socialists and mixed-economy advocates — disclaimer: like me — who see the current mess as a particular obvious example of why capitalism doesn’t work in certain areas and therefore feel that now is an especially good time to pitch their message. And then there are the people who are just angry and scared.
I suspect that Jane Hamsher is more angry than scared, since her line of work is not likely to be threatened by the economic meltdown, or if it is, certainly not to the extent faced by the bulk of the lower- and middle-class working population. But either way, basing one’s thinking on anger and fear is a classic way of developing bad judgment.
(This would be a great time for a dangerous demagogue to rise to power, but America is fortunately blessed by having a party of dangerous demagogues — the GOP — that is inherently unable to take advantage of economic downturns by virtue of being the party of the rich, and the other party is so chronically hapless that even if the Democrats had a ready supply of dangerous demagogues, it’s not clear that any of them would recognize an opportunity if it bit them on the ass. But I digress)
I think the basic approach taken by the Obama administration makes sense, at least in its broad outlines. The house is on fire and they’re trying to put it out, which is arguably not the best time to plan extensive remodeling. Those of us on the left who think nationalization of the banking “industry” is a good idea, period, are hoping to see some indications that the administration knows this fire was arson and was exacerbated by lax fire codes, and we’re not getting it. And some folks are getting upset about it, and understandably so. That’s not to excuse sloppy reasoning, but there’s always some of that in crises — though it pales in comparison to the sloppy thinking in the unsustainable good times that brought us to the brink of this abyss.
Me, personally? I’m starting to move from the angry side to the just plain scared side. Political preferences aside, my main complaint with the Obama-Geithner plan at this point is that I’m not convinced it will work, where by “work” I mean getting the economy to the point that I’m not worried about ending up unemployed because my employer went belly-up.
Excellent analysis, btw, Booman. I may often disagree with you, but I doubt I’ll ever accuse you of intellectual laziness.
Applause. If only people like Krugman had your intellectual honesty.
Boo,
I’ve read through this post and the comments with the greatest interest, as well as admiration for the efforts from all quarters to get some understanding of what’s happening. Since the first bailout, I have been reading and trying to understand what should be done; I have learned a lot, but instead of a conclusion, or even a definite direction, I come now to this impasse, basically Krugman vs. Obama, which I assume is similar to the experience of most of your readers.
One of the things I’ve become convinced of very recently is the point you’re making here, i.e. that nationalization, at least in the present circumstances, could well be a very bad option — not because it is “socialist,” but because the government would lose a lot of money and the same bad guys would benefit. There are also tremendous complications from the fact that these comopanies are multinationals. How do you nationalize a multinational?
Of course, this in itself doesn’t prove Geithner’s plan is a good one.
But I want to raise something that I don’t think anyone’s articulated, though it’s always there just under the surface. When Jane Hamsher talks about guys like Kurland benefiting, why exactly is it bad that such people should benefit? This may at first sound like a stupid question, but bear with me. What I’m getting from the discussion is that, whether you think it’s absolutely wrong for such guys to benefit, or you understand how “distasteful” (to use Edaward Liddy’s word) it is, but still there is no other way — the underlying idea is that it’s MORALLY wrong. I think just about everybody except the sociopaths would agree that it doesn’t seem right from the moral standpoint. And the other side says, yes, true, but unfortunately they are the only ones available to buy these toxic assets.
But it seems to me there is a second underlying issue at work apart from the morality, and that is, that it comes perilously close to cognitive dissonance to believe that in inviting these guys to make yet another collossal fortune with this garbage, you are not both further strengthening their position, and continuing the same system under which they prey on the rest of us.
There is a tremendous fear, I think, that just by the very fact they are taking such an indispensable role in cleaning up the toxic mess — assuming this plan would even work, which is doubtful enough — by this very fact, they are increasing their stranglehold on the government and the society at the time when just the opposite should be happening.
Thus, for most of us, the dispute is not really about nationalization vs. a market-oriented solution. Few of us are ideological enough to see that as the ultimate criterion, nor are most us sufficiently versed in economics and finance to have a definite conviction that one would work and the other wouldn’t. Something else is involved, and it may (or may not) be clouding our judgment. And that something else is: where is all this going? Are the same greedy bastards who brought this country to its knees, consummating their hegemony even further, or will this be their last hurrah, made possible solely because they are the only ones who can fill the role the reformers have mapped out?
We all know the expression, “It takes a thief to catch a thief.” It’s not an exact parallel, but it’s close enough. If there is a way to use the banksters to clean up the mess they themselves created, then fine. But it’s not easy to get one’s head around this, especially when we have little more than faith to go on. No, it’s worse: we expect to see the government clamping down on these characters, instead we see them are making more sweetheart deals with them.
I think what nearly everybody wants is to see the government crack down on these guys, to see the system reformed and the Ponzi booted out of the American economy — on moral and legal grounds, of course, but ultimately on grounds of sheer survival. Geithner’s plan may be a good plan, at least for “putting out the fire.” I don’t know if it is or not — but one thing I do know, it doesn’t have any sense of “crackdown” to it. If from a purely technical standpoint it really is the right way to go, then all the more do we need to see lots and lots of investigations — I like the idea of Eliot Spitzer playing a role in this — lots of prison sentences, and a lot more recognition of what David Axelrod, for one, already understands: that aside from fixing this tremendous financial problem, there is also a parallel political problem: people need to know that this unbelievably corrupt financial system will be reformed.
If from a purely technical standpoint it really is the right way to go, then all the more do we need to see lots and lots of investigations — I like the idea of Eliot Spitzer playing a role in this — lots of prison sentences, and a lot more recognition of what David Axelrod, for one, already understands: that aside from fixing this tremendous financial problem, there is also a parallel political problem: people need to know that this unbelievably corrupt financial system will be reformed.
Reform? You better hope Obama is not listening to Mr. “Nudge”(meaning Cass Sunstein) himself.
I don’t think he is. Whether his plan is right or wrong, Obama clearly believes government can solve problems, and that there are many problems only government can solve — not excluding a role for free enterprise. What I — and I think most people — mean by “reform” in this context is, investigate, break up the mega-financial institutions that are “too big to fail,” and restore regulation — in the form of effective legislation and effective enforcement. I think Krugman’s claim that Obama believes the financial system is essentially sound, is ridiculous on the face of it. Probably what many of us have been missing — and it is understandable why, it is difficult under these circumstances to sit back, have faith and be patient — is the NECESSITY OF AN INCREMENTAL APPROACH to the extremely complex and dangerous mess the GOP left us with. This is stage one, “putting out the fire.” Stability has to come before reform.