Die Tarper, or Tire Rims And Anthrax

[koganbot]

The banks argue that the few trades of such securities lately have been at unreasonably low prices — ones that would be justified only if foreclosures, and losses on foreclosed mortgages, are far higher than now seem likely.

But the banks have shown little interest in demonstrating their confidence in the securities by buying more of them from one another. Instead, banks have sometimes been unwilling to trust other banks that hold such securities.

That lack of trust, in turn, has spread to the broader international financial system.

If many of those troubled assets can be removed from bank balance sheets, and others seem to have a clear market value, economists hope that banks would feel freer to lend — rather than continuing to hoard capital to protect themselves from further losses. Only then, the experts say, can the banking system get the economy moving again.

Those are the final four paragraphs of Floyd Norris's "U.S. Bank Bailout to Rely in Part on Private Money," New York Times, February 8, 2009. They seem to sum up what the issue is in regard to the bailout (I suppose the Geithner plan could be called TARP done right, if it works. If not, we can call it Die TARP II: Die Tarper).

I've not been posting as many of my ignorant explorations about economics as I had previously, being afraid that some Googlers might ignorantly associate my views with those of my brother, who does know what he's talking about.

But as long as I'm under the cut, I'll sum up what I've been reading from DeLong, Krugman et al. as saying that Obama in his attempt at bipartisanship/postpartisanship may well be botching the stimulus, making it too small and ineffective. And the trouble with his bipartisanship is that the people he's making the postpartisan overtures to are fundamentally, deeply insane. Krugman called the 36 Republican Senators who voted to stop the stimulus bill* "irresponsible hypocrites," but he entitled his blog post "The Crazy 36," and to be consistent he actually should (and probably would be happy to) also apply the term beyond these 36 to the Repub and Dem (Claire McCaskill and Ben Nelson) "centrists" who put together the compromise Senate bill, which Krugman thinks hurts the stimulus package. There's an inconsistency in Krugman's terminology, since "hypocrite" implies that these people have some foggy idea of what they're doing, and as far as I can tell, they don't. So "insane" it is, even if it's not clinically correct.** "Stubbornly, destructively ignorant" might do. But then, I called myself ignorant earlier in this post, given that I've hardly mastered the relevant macroeconomic theory, nor do I know the evidence.

Of course, Obama could argue that just because someone is insane doesn't mean you don't need his vote. Krugman would argue back that you have to sway public opinion so that the insane guy has to vote sanely if he wants to get reelected.

FYI: Paul Krugman's "The Destructive Center"

*By the way, the Floyd Norris article I quoted above isn't about the stimulus bill but about the administration's plan for how to use the rest of the TARP money. Different things, the stimulus bill and the bailout, though each has the same ultimate goal, to increase lending and/or spending and ultimately ensure that consumables get created and bought.

**I don't know if DeLong himself has used the word "insane" - he did just yesterday say that Ben Nelson is acting like an idiot. He does quote John Cole, who says:

I really don’t understand how bipartisanship is ever going to work when one of the parties is insane. Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

Comments

[petronia.livejournal.com]

Well, here up north the controversy has been over the Buy American clause, which is a Democratic initiative opposed by the Republicans, so there's insane and insane - I'm hardly with the Repubs on most of this but trade protectionism is deffo insane, given how much it worsened the situation in the 30s.

[sm-woods.livejournal.com]

Regarding attempting bipartisanship with insane people: those insane people also need to shore up votes at some point and not appear insane to voters in their respective districts. Pie-in-the-sky scenario is that Obama continues to utilize his greatest strength, which is to sell his ideas and sell himself to the public -- to spend a fair bit of his Presidency in campaign mode, in other words -- so he potentially can make the insane people appear insane to the public (a "public" we are constantly reminded which is tired of the old partisan Washington ways) by not working with the President (who just happens to be, at least at this point, most Popular Person on the Planet), by not selling better, more creative solutions of their own for the economic situation, by not responding to genuine crisis by banding together with their foes, etc. (On the other hand, the war of public relations can just as easily be won by the insane folk if they're able to convince the public in two years that, "see, the Democrats plan hasn't worked! You're still unemployed, we have the better plan," etc.)

[skyecaptain.livejournal.com]

I worry about this a bit (the "when things don't work, we'll take credit for not being the people in power while it wasn't working" thing), but I honestly think the GOP is far too crippled at this point to rally even in the event of no improvement whatsoever, or worsening, of the economy, at least in the midterm election cycles. To speculate somewhat but totally wildly, I can easily imagine a slow two years of weak versus batshit-insane policy ideas wars, a slight shift further to the Dem side, and then stronger policy pushed through after both the bipartisan narrative has been set and the Republicans have no resources whatsoever to protest and/or look crazier and crazier as they get smaller.

I'm actually more worried that people are overestimating how "progressive" Obama actually is; that is, I'm not convinced that a "pure" version of his own positions/actions on, e.g., bail-out: the revenge are what's needed (in my severely limited understanding) to actually change the system. I mean, I don't know if he's secretly planning to nationalize the banks, but he's certainly suggesting otherwise. (I can see why it would be politically convenient not to be associated with nationalization of the banks, especially so soon into his term, but it seems like an inevitability.)

[skyecaptain.livejournal.com]

"We're somewhat but totally wild and crazy guys!"

[skyecaptain.livejournal.com]

This Krugman blog makes it seem like my no-nationalization hand-wringing might be misplaced, and that there's at least the flexibility to do it later:

"Stress test: everything depends on how this is actually implemented. What happens if, or more likely when, a major money center bank is stress-tested and found to have negative net worth? One possibility is that the auditors are told to come up with a different answer; that’s a big concern. The other is that the bank is effectively nationalized; as I read the language that could be achieved as part of the public capital injection."

[koganbot]

Well, in the past week, it's the insane ones who've done a good job of channeling the popular mood, putting forth an outraged "They are using your money to do ________!!!"

[skyecaptain.livejournal.com]

Building stuff?? How does that create jobs??

[sm-woods.livejournal.com]

it's the insane ones who've done a good job of channeling the popular mood

I didn't see this before my last post...

But see, I honestly believe (without having genuine proof to point to) that that's something of a media-constructed impression (which, in itself, means something, don't get me wrong). Polling data apparently still shows an enormous amount of public support for Obama with a willingness on the public's behalf (which I certainly wouldn't overestimate, mind you) to allow the guy time to tackle the problems, etc.

On the other hand, someone on MSNBC made a good point the other day: Republicans will have a much easier time in the next couple years winning wars against Democrats (as opposed to winning wars against Obama)... as though they will treat each of them as entirely separate entities.

[koganbot]

You may well be right, though last I saw (and I don't even remember where) pro and con on the stimulus was 50-50, and I dread to even look at what the numbers will be on the bailout (which is critically necessary). Keeping my fingers crossed.

You and petronia (who I think is in Montreal) might have an interesting perspective on U.S. media.

[koganbot]

By "interesting perspective," I mean that you might have a sense of how out of whack it might be.

[sm-woods.livejournal.com]

Yeah, I shouldn't have said "the war of public relations can just as easily be won by the insane folk" -- it does seem like a real longshot at best. (The problem with picking up too much of this stuff off CNN and MSNBC is that you come away convinced there are still two parties in existence of equivalent strength, when clearly at the moment there isn't.)

re: the "progressive" mantle -- it seems like he's already working hard to manage those expectations, but it's hard to imagine, especially after Clinton, ANY Democratic President adapting an economic strategy based on even mildly socialist principles like nationalizing the banks (given how tightly both parties are tied into corporate interests, etc.), except in the most dire and extraordinary circumstances... which it seems may now be the case.