You are wrong about the Geithner plan. (You are also right about it)

[Kurt_and_Hunter]

Is the Geithner plan a rip-off or an ingenious solution?

Both! It is an ingenious rip-off that may play a role in solving a problem.

The purpose of the plan is to fund a trillion dollar give-away to the banks with tax-payer risk (which is money... ask a casino) while avoiding asking Congress for money.

The fact that it is a product of the Obama administration doesn't make it right.

The fact that it is a grand robbery that violates the spirit, and possibly the letter, of the legislation that creates and controls the FDIC doesn't make it wrong.

1) Do we need to funnel a trillion dollars of unencumbered cash (as opposed to illiquid assets) into the banks? That's a legitimate policy question to be debated.

2) If we NEED to do that for the good of the world then is it right to accomplish it through a big accounting scam if that's the only way to get it done? Also a question with two sides to it. Kind of like FDR's Lend-Lease.

It is easy to demonstrate that the plan has been presented dishonestly and easy to demonstrate that it is a grab-ass end-run around Congress's Constitutional prerogatives.

But notice that congress has not blocked it. They certainly could. But they will not because they don't want to take the chance... maybe it's a good thing? So instead they will wait to see how it all turns out and then bitch about it if necessary.

Meanwhile, much criticism of the Geithner plan flows from people recognizing that most things the administration has said about it are bogus. But that is a criticism of WH candor, not of the plan itself.

In the usual chess vs. checkers paradigm, Congress is playing Blind Man's Bluff while te Administration is playing Russian Roulette. The Geithner plan is full of political and financial risk. Congress is pretending it's not their call.

I have actually come to admire the Geithner plan as political hard-ball.

Will it make anything better, economically? I'm an agnostic on the thing. I would rather the FDIC loan $5,000 to every American citizen, but if the choice is between the FDIC loaning a trillion to someone in a specific way versus not loaning anything at all then I'll hold my nose and support the loans because I support almost any form of federal money creation right now.

If, however, these loans diminish the FDIC's ability to take over some banks later, which it might, then I'm against it.

That seems to me to be the real question.

[ProSense]

1. "Both! It is an ingenious rip-off that may play a role in solving a problem."

:rofl:

[Political Heretic]

5. Sadly that's about the truest statement I think I've heard.

I mean, it may ultimately help things get better down the road. My dispute is not because I "know" that it will not eventually do some good...


My anger at the plan comes from:
-- Who raped the system and got rich in the process
-- How many billions were wasted when there was a better way
-- How much opportunity was lost by returning to "system-as-usual" instead of system overhaul
-- What does it mean for us when we have no serious accountability for Wall Street when they willfully game the system into collapse like this

I continue to believe that, if Wall Street politics was out of the equation, and we were truly just thinking about what's best for the country, we could have had a bottom-up financial recovery plan that bailed out homeowners and focused on mainstreet first, and the restoration of once-bad assets as well as aid to main street consumers would have "trickled up" to Wall Street and cost much lest in wasted taxpayer money.

[ProSense]

6. Maybe your anger is misplaced

My anger at the plan comes from:
-- Who raped the system and got rich in the process
-- How many billions were wasted when there was a better way
-- How much opportunity was lost by returning to "system-as-usual" instead of system overhaul
-- What does it mean for us when we have no serious accountability for Wall Street when they willfully game the system into collapse like this

The plan wasn't designed to address those issues, which can only be addressed by regulatory reform and I hope a serious investigation.

[Political Heretic]

8. Which is why, in my opinion, the plan sucks.

I went on to explain exactly what I felt should have happened instead, ProSense.

When I say "how many billions were wasted when there was a better way" you can't say "the plan wasn't designed to address those issues" - because that makes no sense.

The plan, in my opinion, which is obviously disputed by some, is built on the mistaken assumption that our system has no foundational critical problems, but just needs a "jump" start and then happy days will be here again - sure we should tighten up ship with a regulation here or there, but basically the "fundamentals" of our plunder capitalist model are strong.

That's the philosophy guiding this plan, in my opinion. And I completely disagree with that belief. I believe to save our market system and make it a sustainable free market system, major core changes to our economic structure are needed - not just "regulatory" reform. EFCA, by the way, is a part of what is needed for a real recovery and not just another jobless "boom/bust" cycle.

That's where I'm coming from. I could be wrong.

[ProSense]

9. The plan was never intended to do that.

It's impossible to conflate the plan to stabilize the economy with regulatory reform. All the things in your subsequent statement are not related to system overhaul.

[Political Heretic]

10. They most certainly are related, and its not impossible at all, in fact its essnetial.

[ProSense]

11. They are not related in terms of

intent: stabilizing the economy, stopping it from spiraling out of control, does not serve the same purpose as regulation reform.

[Political Heretic]

14. I understand what you're saying. But let me start over and see if this make sense:

Okay...

I'll stipulate that I could be wrong about all the things that I am about to say.

I don't believe any plan that is simply treats our problems as a liquidity problem will stabilize the economy. My opinion of the plan is that it is based on a belief that the fundamentals are strong and all we need is a kick-start of banks and all will be well again. I believe that the plan makers do not see need for any serious changes to the way America does its business, and the plan reflects an underestimation of the severity of the crisis as well as the attitude and intentions of players on wall street.

In my view, there's nothing you can do on the "supply" side to stabilize the economy. If you want to think of reform and stabilization as separate, then it is my opinion that the only stabilization that is appropriate, taxpayer responsible, and better for the long term health of the country is a plan that focuses on the buyer not the lenders, or betters on the lenders, or insurers on the lenders.


Now... after listening, I understand why you're saying the plan wasn't about reform and you can't do both at the same time. What I'm saying however, is that while I get what you're saying, I think that we could both be implementing a more appropriate main street focused plan as the plan that will BEST stabilize the economy with the most responsible use of taxpayer money AND at the same time be doing some immediate investigation into the practices of lending firms and wall street agencies and the gaming of the system around these toxic assets, and we could be breaking up failing banks and firing their CEOs - which in my mind really does connect to helping to restore stability, but I could see how one would argue otherwise.

So my primary point is that I feel the only path to economic stabilization is via plans that focus on the people first, the institutions second. My secondary point was the idea that Washington should be taking a tandem approach of a main street bailout plan and wall street crackdown & reform. Really in my mind it is the one-two punch combination that will bring us out of this downward spiral....

That's what was going on in my mind when I talked about them being connected.

[Romulox]

2. I don't understand how subsidizing risk with taxpayer $$$ will result in less risky behavior

Basic axiom of economics: you get more of anything you subsidize.

:shrug:

[Kurt_and_Hunter]

3. The risk is a red herring

The program is designed to funnel money into the banks.

The involvement of the private investors is just a tactic to enable te FDIC to fund the thing, since congress probably won't appropriate money for it.

At least that's my best take on the real motives.

[FrenchieCat]

4. Are you disingenuous on purpose or is it an accident?

In your statement of being "an agnostic on the thing." you also state....

"It is an ingenious rip-off"

"The purpose of the plan is to fund a trillion dollar give-away to the banks"

"it is a grand robbery"

"a big accounting scam "

"the plan has been presented dishonestly"

"it is a grab-ass end-run around"

Your entire post is simply your opinions wrapped in a cloak of absolute statements stated as facts without any solid evidence whatsoever, which contradicts your disclaimer.

Agnostic: –noun
1. a person who holds that the existence of the ultimate cause, as God, and the essential nature of things are unknown and unknowable, or that human knowledge is limited to experience.

2. a person who denies or doubts the possibility of ultimate knowledge in some area of study.

–adjective 3. of or pertaining to agnostics or agnosticism.
4. asserting the uncertainty of all claims to knowledge.


--------------------------------------------------------------------------------

Origin:
< Gk ágnōst(os), var. of ágnōtos not known, incapable of being known (a- a- 6 + gnōtós known, adj. deriv. from base of gignskein to know) + -ic, after gnostic; said to have been coined by T.H. Huxley in 1869
http://dictionary.reference.com/browse/agnostic?jss=1

[grantcart]

7. while agreeing with your basic take I don't understand why

you would say it has been presented dishonestly.

The presentation from the begining was that it was a sweetheart deal for investors who would have no risk.

The rational was that it was needed to break the ice for people to start getting back into financing bonds for mortgages, and the first one in was going to get the best deal. This was clearly understood in the presentation and led to an instant bump in the stock market with seconds of it being explained, carefully, clearly and without deception.

Also the 'trillion dollar' exposure only is true if you accept the possiblity that property values could crash down to have $ 0 value.

As we have discussed before everything else in the recovery is absolutely dependent on atleast a small psychological recovery in real estate prices. Until that happens all of the other money that is being invested is at risk and unlikely to have the benefit we all want.

FDR's Lend-Lease was similartly without precedent and again circumstances required that a solution was brought forth that was outside of established practice. In both cases I think labelling it as 'an accounting scam' is inaccurate.

One may disagree with the action but there has been no effort to hide the intention of the act or create any switch and bait.

In the past these kind of actions, whether Lend Lease or the guarantees for Chrysler have a surprisingly good track record and not only did not end up costing the government more money than the pessimists worried about but actually made the government money.

[Kurt_and_Hunter]

13. I don't think the investors matter at all.

It is a sweetheart deal for the banks. The investors are a side-show. They won't get rich (on average) because the sales are voluntary, the auctions are fake and they're playing with someone else's money which all adds up to high prices.

The investors get a free-roll, yes, but in a system designed to give them terrible odds. Everyone got too caught up in the propriety of involving private investors to notice that every rule and procedure favors the banks at the expense of the Feds and the investors.

I say it has been presented deceptively because some of the talking points didn't pass the giggle test.

For instance, whatever it is it isn't a price-discovery method for these assets, which was a chief selling point. Every aspect of the thing is set up to distort price. The capper was when I found out the banks don't have to accept the winning bids in the auctions. That was the last straw that convinced me the whole thing is just a brute recapitalization scheme and all the odd bells and whistles are necessary to funding the thing off the books.

It's not a good way for the government to make money. It's not a good way to establish a robust secondary market in these assets. It's not a good price-discovery framework. It doesn't force any asset to market. It doesn't require that the auction prices be honored. And it isn't risk-free for the FDIC.

But it DOES allow the FDIC, an entity with an ostensible $30 billion lending cap, to magically create one trillion dollars and pay it to banks with no need for congressional authorization. (While claiming that loaning people a trillion dollars for wobbly assets represents no balance-sheet risk because if it did that would make it illegal.)

That's the only part of the thing that's really shrewd and I respect Geithner and Summers, so I give them the B of the D and assume that's the real point.

[w4rma]

12. I despise the Geithner rip-off. It gives away trillions and it won't solve our problems. (nt)