Stiglitz vs. Johnson

[ProSense]

Stiglitz:

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

Simon Johnson:

Imagine what happens when these powers are passed. The U.S. Treasury and FDIC would immediately have the tools need to walk into America’s largest financial institutions, such as Citibank or Bank of America, and liquidate them, or rewrite their contracts and capital structures...However, today these powers don’t exist, and none of us know exactly how this authority would be used if it ever lands on Mr. Geithner’s desk.

(Emphasis added)

Now, how does the administration nationalize when they do not yet have the authority to seize these companies?

[ProSense]

1. No comment? n/t

[Redbear]

2. By purchasing all of the shares and then voting those shares to

control all decisions?

They effectively "nationalized" AIG, but left some shares in public hands etc.

They also "nationalized" Fannie and Freddie.

From what I have read, the FDIC has the power to just plain seize domestic banks but not non-banks or foreign banks, Citi, BOA etc. all have significant non-bank and foreign operations. The authority Geithner is seeking would allow them to seize any financial institution without regard to whether it is called a bank or not.

Some commentators think that this means nationalization is coming, but that the admin wants to accomplish three things first:

1. Stress-testing to show just how bad off these institutions are, which will make nationalization politically easier.
2. The toxic asset public private partnership plan to get rid of at least some of the mess.
3. Getting all the legal authority they need to do the job quickly and efficiently.

[MarjorieG]

3. Admin. being cautious until more facts known of int'l crisis/debts. Also need to run a country,

provide growth. I think frightening and more disabling to admit the extent of where we are, and threatening to healthy banks.

Reports of Obama trying to bring the corporate culture to its senses in recent CEO meeting by "help me, help you," or "he's between them and the pitchforks," without first blowing up country.

Even if admin. could go in by some extraordinary maneuver, the problems with that worse. I feel the admin. will do what's needed once given the power and road forward more clear.

[Kurt_and_Hunter]

4. That's a weird question. Seeking authority is itself a step in a process

The admin asks for power to do X.

You suggest that invalidates arguments for X because the admin doesn't have the power to do it.

Seeking the power to do it is part of the process of doing it

"Let's go get lunch"

"Okay. I need to go by the ATM to get money for lunch first."

"That invalidates my suggestion we get lunch since you do not currently have lunch money."

[ProSense]

5. No that's a weird response. n/t

[paulk]

6. it's not a weird response at all, IMO

you need to present an argument as for why it's a "weird" response.

Seems to me the poster has it right, the legislation is part of the process (if that's even the way the Obama intends to use it, which even Johnson admits is unclear). It's not in opposition (vs?) to what Stiglitz is saying.

[ProSense]

7. "Seeking the power to do it is part of the process of doing it"

So then Geithner is right? If he's planning to do this when he has the authorization, why is it worse?

Isn't that putting the accusation before the authority? What does Stiglitz want him to do right now when he has no authority (that is until that authority is granted)?

Treasury proposal




Edited for clarity.

[Babel_17]

8. I don't read Stiglitz as claiming ...

that the administration can nationalize everything.

I read Stiglitz as claiming that Geithner's current methods are worse than what would come about from any nationalization/takeover. I'm assuming he's talking about both the ones that gov't can do now and the ones that could only be done under special circumstances.

Indeed, if you look at the paragraph following the one where he mentions "nationalization" you'll see that he immediately references "banks".

Banks can be nationalized/taken over. It's financial institutions, among others, that can't be.

"So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization."

[jeanpalmer]

9. Stiglitz overstates the gains to the government