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]

John Hempton (A little bit of careful thinking – and why Krugman's despair is misplaced):

Thinking carefully there should be four broad outcomes:

• Both the bank and the Geithner fund is solvent

• Both the bank and the Geithner fund is insolvent

• The Geithner fund is insolvent but the bank is solvent

• The Geithner fund is solvent and the bank is insolvent


When both the bank and the Geithner Fund is solvent ex-poste there was no cost to the government. Sure there was an ex-ante subsidy but it didn’t cost anything. This case should not worry us.

The second case – when both the banks and the Geithner funds are insolvent the government will lose money – but it will lose less money than it would without the Geithner Plan. After all there was some private money in the fund – and that reduced the end loss borne by the government. In other words subsidy be damned - the plan reduced government losses.

The third case is problematic. If the Geithner Fund is insolvent and the bank is solvent then the Geithner plan cost the taxpayer real money.

The fourth case where the fund is solvent and the bank is insolvent is also problematic – but in a different way. The fourth case is where the banks sold good assets to the fund (presumably for liquidity) and kept the bad book for itself (because it could not sell it). Now in this case the subsidy to the Geithner Funds is not a problem – rather it is the desperation of the banks to sell assets, any assets and only being able to sell good assets. The more subsidy you give the Geithner Funds and the more competition between Geithner Funds you have (bidding up the price of the asset) the lesser the end problem for the banks. Either way however we shouldn’t be that stressed about the subsidy to the Geithner Fund.

Indeed the only place that we should be really stressed about subsidy to the Geithner Funds is the third case – where the fund is insolvent but the banks are solvent.

Oops. The people that are really stressed about the subsidy to the Geithner Fund (Krugman, Felix Salmon, Yves Smith of Naked Capitalism, Mike of Rortybomb) are also worried about or even convinced that the banks are insolvent. Indeed several of these people just advocate nationalisation now.

This is illogical. It is the second time I have accused Krugman of gross illogic – but it is simply illogical to believe that

(a). The banks are largely insolvent,

(b). The right or actual government policy is guarantee big banks (ie no more Lehmans) and

(c). The subsidy to the Geithner Funds is a real problem.

If both (a) and (b) applied the Geithner Fund MUST save the government money - so the subsidy is irrelevant.

(I continue not to understand this subject; I will also point out that Hempton links to a couple of posts from an excellently titled blog called Rortybomb, the Rortybomb guy's analysis running along the same lines as the Krugman analysis that Hempton is criticizing.)

(If you follow the link to Hempton's post you will see that not only does he sometimes screw up singular and plural in his verb forms, he also doesn't always get which parts of a sentence need to be outside rather than inside parentheses and dashes.)

[koganbot]

Felix Salmon (Hempton's Law of the Conservation of Subsidy):

I think John might be on to something here, but I still think there's a strong case to be made for maximizing the transparency of any government subsidy to the banking system. The critics of the subsidy implicit in the Geithner plan aren't in general critics on the grounds that it constitutes excessive government spending — we're mostly supporters of the stimulus package, for instance. Rather, my problem with the implicit subsidy is more about the "implicit" part than the "subsidy" part. If you're going to subsidize the banks, let's make it very clear which banks you’re subsidizing, and how much you're subsidizing them by.

[koganbot]

If that link goes bad, here's a more direct one:

http://blogs.reuters.com/felix-salmon/2009/04/02/hemptons-law-of-the-conservation-of-subsidy