Tuesday, March 24, 2009

I'd be very surprised if either of those things was true.

From the Curious Capitalist:

"Is the Obama economic team dumb, or evil? (Or maybe, uh, neither.)

James Surowiecki nails something that also bothers me about many of the critiques of the Geithner plan:

Much of the discourse around the Geithner plan, and around the nationalization debate more generally, seems to assume that Obama's economic policymakers don't understand the gravity of the situation or the virtues of nationalization, or else it assumes that they don't really care about improving the real economy. I'd be very surprised if either of those things was true."


  1. donthelibertariandemocrat Says:

    That's been my main problem all along. I like William Gross, but, when this crisis hit and he basically endorsed a version of the current plan, he said this:

    "The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street, as lending capacity and confidence is restored to our banks and the delicate balance between production and finance is given a chance to work its magic. Democratic Party earmarks mandating forbearance on home mortgage foreclosures will be critical as well. If this program is successful, however, it is obvious that the free market and Wild West capitalism of recent decades will be forever changed. Future economic textbooks are likely to teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient over the long term when there is another delicate balance -- between private incentive and government oversight."

    In my view, he underestimated the gravity of the crisis. He focused on economics and cosmetic changes. That's why he seemed to have a tin ear when he said that he'd work for free. The crisis simply needed some investing advice. Conflict of interest and collusion problems eluded his grasp.

    He knew, for sure, given his treasury investing in 2008, that many investors believed that there was an implicit guarantee for the government to intervene, especially after Bear. So he gets how the system was running.It was no Wild West. I'd have been impressed if he'd used that expertise to say that our system is a welfare state in which certain interests dominate. Based on those assumptions, bankers and investors, and the government, got us into a veritable catastrophe. Going forward, we're going to have to break up that relationship, which will take political will and savvy.

    Bernanke and Geithner are saying the right things today. In the case of Bernanke, I simply believe that he has been too slow and deferential. As with Gross, he knows the score, but has been too reticent to spit it out. Reading Geithner's earlier speeches, he seems to have been aware as well.

    I don't know if it's that they want to keep the status quo or are just being pragmatic, but I do believe that they know how the system runs and how broken it is. They have the knowledge to provide real leadership. I'm praying, as with QE, that it is merely pragmatism and real restraints that have tied their hands, and that, going forward, they will make the tough choices.

    Justin Fox is correct in saying that he was among the earliest to talk about the Swedish Plan. To me, that meant acknowledging that we didn't have a method to seize large banks or investment firms, and needed to get going. Whether we had to seize any of them was an open question. It does seem like it has taken a long time for them to acknowledge the obvious, although, in my case, it is true that I believe that they could have given more incentives to the B of A or Barclays to save Lehman. So I've assumed that they made a very bad bet and lost, and I lost a lot of trust in their savvy. Now, I hope that they're on track, because, quite frankly, they're the ones running the show.

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