Hilson touted over Geithner

[koganbot]

While everyone's talking about the Keri Hilson album having leaked, it's worth noting that the administration's plan for fixing the financial system has also leaked. Early responses are less favorable to Geithner than to Hilson. I didn't understand the plan as reported by the NY Times, hence I don't have an informed opinion. Paul Krugman's reaction is despair (and more detailed despair). Yves Smith calls the plan an abortion and she also uses the words "crappy" (in regard to what will be bought under the terms of the plan) and "idiots" (the administration's perception or misperception of who constitutes the public). And this guy, who may not actually be an economist, puts concerns to music.

(The Hilson, by the way, is yet another interesting album (see Vanessa Hudgens', Ryan Leslie's, and The-Dream's) by someone with no presence or charisma as a singer. So far the bits of beauty and the mere gestures towards passion seem sufficient, somehow, or fairly likable half the time, anyway. Better than I'd expected, though my expectations were lower than some people's. See my reappraisal of "Turnin' Me On" here.)

EDIT: DeLong, on the other hand, seems fairly happy with it, unless I'm misreading his tone, which I may well be. Not that I understand his analysis either, obviously, but my guess is that some of you will, since he's laying things out pretty simply.

Comments

[koganbot]

Peter Boone, Simon Johnson, and James Kwak (Baseline Scenario, April 7, 2009): We also do not expect the PPIP to meet its stated objective of starting a market for toxic assets (both whole loans and mortgage-backed securities) and thereby moving them off of bank balance sheets. In essence, the PPIP attempts to achieve this goal by subsidizing private sector buyers (via non-recourse loans or loan guarantees) to increase their bid prices for toxic assets. Besides the subsidy from the public to the private sector that this involves, we are skeptical that the plan as outlined will raise buyers' bid prices high enough to induce banks to sell their assets. From the banks' perspective, selling assets at prices below their current book values will force them to take writedowns, hurting profitability and reducing their capital cushion.

As long as the government's strategy is to prevent banks from failing at all costs, banks have an incentive to sit the PPIP out (or even participate as buyers) and wait for a more generous plan. Again, the key question is how the loss currently built into banks' toxic assets will be distributed between bank shareholders, bank creditors, and taxpayers. By leaving banks in their current form and relying on market-type incentives to encourage them to clean themselves up, the administration has given the banks an effective veto over financial sector policy. There is a chance that the PPIP will have its desired effect, but otherwise several months will pass and we will be right where we started.

This is part of The Baseline Scenario's general assessment, which is pessimistic ("While most forecasters expect positive growth in most parts of the world in 2010, those forecasts seem to reflect expected reversion to the mean rather than any identified mechanism for economic recovery").

In other happy news, Barry Eichengreen and Kevin H. O'Rourke (A Tale of Two Depressions) think that, if anything, the world's economy is doing worse than it had at the beginning of the Great Depression: "The world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the U.S. leads one to overlook how alarming the current situation is even in comparison with 1929-30. The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column." Hah!

(But I'm not quoting at length from their analysis, as that would take this thread beyond its mandate.)