Legal Commentary

The "Stale Debate" On The Financial Crisis

By Big Tent Democrat

E.J. Dionne quotes President Obama at the G-20 Summit:

"We can't fall back on the stale debates and old divides," Obama said at his Wednesday news conference in London with British Prime Minister Gordon Brown.

As applied to the financial crisis, this is simply nonsense from President Obama. He is applying a solution that has been tested and failed. In Japan in the 1990s. Dionne acknowledges this by citing Krugman and Stiglitz:

Treasury Secretary Tim Geithner believes that the toxic assets in their portfolios are temporarily undervalued in a bad economy. This means they will be worth more when the economy improves, which in turn means that the banks aren't really broke.

Krugman, the New York Times columnist who has emerged as Geithner's most prominent critic, thinks the banks [Krugman thinks SOME banks are insolvent actually] are insolvent. He believes that the economy will improve more slowly than Geithner does and sees many of the toxic assets as "trash." Therefore, Krugman thinks a temporary government takeover of some of the banks is inevitable and will ultimately get the economy moving more quickly. Geithner thinks a takeover will be more difficult than its supporters allow and might slow economic recovery. He prefers the more cautious approach of having government and private investors buy up the toxic assets before considering more radical steps.

The other two disagreements follow from the first. Critics of the administration plan (notably Stiglitz) believe it involves government subsidies for private investors that are much too large and will leave taxpayers far too exposed.

The Dionne upshot:

If Geithner is correct, he will move us to recovery with less disruption. If he's wrong, he will waste a lot of taxpayer money before eventually reaching the Krugman solution. My heart is with the Nobel critics, but my head hopes that Geithner is making the right bet.

That's the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.

This is horsesh*t. If you think Geithner and Obama are wrong, you say that. Natural allies? Your natural allies support you when they think you are right and criticize you when they think you are wrong. Right now, Obama's wave of the "stale debate" rhetoric will not make his policy right.

Speaking for me only

Full post as published by TalkLeft on April 03, 2009 (boomark / email).