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]

The New York Times publishes an editorial about the Geithner plan ("a better way would be to base the rescue on current reality, not assumptions about the future") and then asks my usual suspects (Paul Krugman, Simon Johnson, Brad DeLong, Mark Thoma) whether they think the plan will work:

Excerpts:

Paul Krugman: If the banks are really in deep trouble that goes beyond lack of confidence, subsidizing investor purchases of toxic assets, many of which aren’t even held by the most troubled banks, has no real chance of turning things around.

Simon Johnson: The Geithner plan may prove to be part of the solution, but a relatively small part. If the economy continues to deteriorate, we urgently need a “resolution mechanism for large banks”; in plain English, the government will supervise their bankruptcy and had better figure out how to do this more effectively.

Brad DeLong: When assets are seen as less risky, their prices rise. And when there are fewer assets to be held their prices rise too: supply and demand. With higher financial asset prices, those firms that ought to be expanding and hiring will be able to get money on more attractive terms.

My guess, however, is that we would need to take $4 trillion of risky assets out of the supply currently held by private financial intermediaries to move financial asset prices to where they need to be.

The Geithner plan offers only $500 billion. The Federal Reserve’s quantitative easing plan will add another $1 trillion... Why isn’t the administration doing the entire job? My guess is that the Obama administration wants to avoid anything that requires legislative action.

Mark Thoma: The first thing to watch for is whether private money is moving off the sidelines and participating in the program to the degree necessary to solve the problem. If the free insurance against downside risk that comes with the non-recourse loans the government is offering doesn’t induce sufficient private sector participation, then it will be time to end the Geithner bank bailout.

The second factor to watch is the percentage of bad loans the government makes as part of the program. . . If the price of [the purchased] assets is increasing sufficiently fast, then the loans will be safe. But if the prices do not respond to the program, then the loans will be in trouble.

In that case, we will need to end the program as quickly as possible and minimize losses. The next step will have to be bank nationalization, though the political climate will be difficult.

Unless Paul Krugman has 60 votes in his back pocket...

[koganbot]

More from DeLong: I suspect that in the end we will be driven down the road to some form of bank nationalization — and if that is where we are going Paul Krugman is correct to say that it is better to get there sooner rather than later. But unless Paul Krugman has 60 Senate votes in his back pocket, we cannot get there now. And the Geithner Plan seems to me to be legitimate and useful way to spend $100 billion of TARP money to improve — albeit not fix — the situation.