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

[dubdobdee.livejournal.com]

delong says the times have explained it badly (i agree, insofar as i find their story hard to follow)

the geithner plan is a banks-are-bubbles-(in-a-good-way) plan; the objectors are saying when-banks-are-bubbles-this-is-bad

the banks-are-bubbles-(in-a-good-way) plan: is essentially arguing that given enough time and returning confidence, the troubled assets will regain their robustness (example?: a foreclosed mortgage is a promised lump sun of a large size which has irrevocably collapsed to a much smaller size, and can't grow, because the mortgage holder has posted the keys thru the letter box and walked away -- but as the economy improves the property can be resold, and gradually, after some years, make as much money if not more as it would have anyway... the government has big pockets and can wait)

the when-banks-are-bubbles-this-is-bad critique: is saying that really very large proportion of the trouble assets are genuinely worthless and will NEVER accrue however long you wait, so the purchasers are just being given guaranteed loans to buys closed boxes of nothing... when they open them and find them empty, they will lose nothing, and meanwhile the bank who made the dodgy loan (or whatever) in the first place has got its money back

essentially the geithner plan is a long-term gamble on the market generating enough money to pay off the loan, one way or another -- it assumes the market will gradually recover once banks start making loans to businesses again (which currently they are not doing as they are so scared that the unplumbed hole in the vaults will turn out fatal: now that someone is buying that entire hole, sight unseen, the banks can get back to their normal processes...)

a major downside is that there is no weeding out of incompetent management: they are being kept on, subsidised, in some cases rewarded: what many are calling a "massive case of moral hazard"

[koganbot]

but as the economy improves the property can be resold, and gradually, after some years, make as much money if not more as it would have anyway...

But I don't think anyone believes this (not Geithner, not DeLong). They're not assuming that housing prices (in real prices, adjusted for inflation) will naturally return to what they were before the bubble. In fact, some people think that housing is still overvalued now. The disagreement is over what the assets will be worth once "confidence" returns, whether or not the market for the assets (which is assuming they're worth very little) is undervaluing them at the moment. But I don't pretend to understand the plan.

[dubdobdee.livejournal.com]

yes but isn't the problem that, while no one perhaps believes tins, no one in a "responsible" position can be seen to act as if they actively disbelieve it (because of the risk of the delcaration triggering a further collapse in confidence): so you're getting this super-fudgy "acting as if everything depends on the fact that there's a key 'they' that does still believe this (when we all know none of us do)"

the geithner gamble isn't perhaps so much that the assets themselves will turn all out to be salvageable, but that the market as a whole will recover (and in the process buoy the housing market up a little, even: so that in the long run some of them will deliver)

[dubdobdee.livejournal.com]

here is yglesias making a sensible point in a tidy way, about the issue of confidence; and how value in respect of a lot of these closed boxes isn't intrinsic, it's social and situational

[dubdobdee.livejournal.com]

in the yglesias comments max (who may or may not be max sawicky but def knows his economic onions, which mnost of yglesias's commenters i think don't) amplifies that point, by expanding a critique of the geithner plan along the same lines

(the krugman and atrios and max critique of delong is i think that a lot of the damage to the assets is already done and the contraction is on its way unless something ELSE -- beyond the geithner plan -- gets enacted: ie "rescuing the banks" in the swedish sense, which basically means dissolving them and setting up a temporary govt bank in their place) (i'm pretty sure in the swedish example, the nationalisation was temporary)

[koganbot]

will naturally return to what they were before the bubble

I meant to write "before the bubble BURST," which is to say naturally return to the bubble prices.

[koganbot]

Krugman replies to DeLong.

The whole point about toxic waste is that nobody knows what it's worth, so it's highly likely that it will turn out to be worth 15 percent less than the purchase price. You might say that we know that the stuff is undervalued; actually, I don't think we know that. And anyway, the whole point of the program is to push prices up to the point where we don't know that it's undervalued.

(Which I don't think I understand.) And there's this:

If getting the prices of toxic assets "right" isn't enough to rescue the banks, that doesn't mean that we're doomed; it means that we actually have to, you know, rescue the banks, Swedish style, rather than rely on fancy financial engineering to make the problem go away.

(One thing I like about Krugman is that he can write. That "we actually have to, you know, rescue the banks" is good enough to be on livejournal.)

[dubdobdee.livejournal.com]

yes i think he's (on the whole) a good writer for an economist, and he's adapted well to blogging

this though:
And anyway, the whole point of the program is to push prices up to the point where we don't know that it's undervalued

i think he means:
And anyway, the whole point of the program is to push prices up to the point where we know that it's NOT undervalued... ie where we know its value and know that that the value is an appropriate and a sensible and a workable value (it's about achieving "market transparency", in other words); because at this point, normal capitalist planning and process are able to kick back in -- everyone agrees they are on the same page as everyone else

[koganbot]

Here's a clear (I don't know if correct) explanation of the Geithner Plan (and the Paulson before it, and of temporary nationalization) by Mark Thoma.

[koganbot]

And from DeLong:

At the moment "Fear of Reese Witherspoon Look-Alikes on the Pill" has 116 comments, while "The Geithner Plan FAQ" has only 89 comments. I confess this leaves me somewhat disappointed: I thought money would be dominating by this point...