Talk about unintended consequences. All this populist anger ginned up by congressional Democrats, the media and the Obama administration is going to hinder the Treasury Department's strategy to rescue the banking system.
Paul Krugman, the liberal New York Times columnist and winner of the 2008 Nobel Prize in economics explained to Bloomberg News on March 24 that this is just what is happening.
According to Krugman, the backlash caused by bailed-out American International Group (AIG) compensation debacle and efforts by Congress to limit other expenditures - private jets, office redecorations, salaries, etc. - is causing otherwise healthy financial institutions to shy away from accepting and keeping Troubled Asset Relief Program (TARP) money from the federal government.
"Well, I think that pushes us further in the direction of what I just described - that sort of guarantee plus nationalization because all of the plans they've tried so far - they're trying to avoid stigmatizing anybody," Krugman said. "This is the whole thing - you don't want to say, ‘Well this bank is bad and that one.' So they tried to get everybody to take TARP money, even some of the firms that didn't need it."
Goldman Sachs (NYSE:GS) is reported to be in talks with the government to return TARP money according to Bloomberg. And David Viniar, the investment bank's chief financial officer, said Feb. 4 that running the company without government money "would be an easier thing to do."
"Then it turns out there are popular demand that there be some restrictions on companies that do stuff with government money," Krugman said. "And firms that don't really need the money don't really want to live under those restrictions."
But according to Krugman - this will cause problems because the healthy and unhealthy banks will be separated and that could force a run on the unhealthy banks. That could obligate the federal government to nationalize certain institutions.
"So what we're actually seeing is - the Goldman thing is actually a breakdown of the strategy that is reflected in the Geithner plan," Krugman said. "It's basically saying you cannot do this with a plan that does not in fact try to distinguish between banks that are in trouble and banks that are not."
Editor at Large
Comments Policy
Imagine me saying this with
Wed, 03/25/2009 - 09:52 ET by MANstreammediaImagine me saying this with flailing (dryer exhaust tube) robot arms:
DANGER! DANGER! Paul KrugMAN! DO NOT GO ON DAILY SHOW! DANGER! DANGER!
bailout history
Wed, 03/25/2009 - 10:08 ET by east tennessee johnLet's see here were 3 maybe 4 people in the room when the AIG bailout plan was hatched; Tiny Tim, the tax cheat; Hank Paulson, ex-Goldman boss; Bernacke and perhaps Rahm, the man behind the curtain, Emmanuel. Paulson was concerned because of Goldmans' AIG exposure. Deal got cut. Goldman was saved,as all other competitors except Morgan Stanley were merged or killed. Tiny Tim becomes Sgt. Schultz's Secretary of the Treasury, Ben and Rahm stay in place and Snyder, AN EX-GOLDMAN EXEC becomes head of the NY FED,replacing Tiny Tim. the tax cheat. What's the old saying, vice is nice but incest is best? This is supposed to inspire confidence in the system?
~Man
Wed, 03/25/2009 - 10:14 ET by choselife3xYou are cracking me up this morning!
That high-pitched scream you hear is the troll under my heel.
"...causing otherwise
Wed, 03/25/2009 - 10:00 ET by Apostate_Fritter"...causing otherwise healthy financial institutions to shy away from
accepting and keeping Troubled Asset Relief Program (TARP) money from
the federal government."
Excuse me - why are "otherwise healthy financial institutions" getting my tax dollars in the first place?
Why unhealthy ones either.
Wed, 03/25/2009 - 12:51 ET by ahusserPandora's box is opened. Just a hop skip and a jump away from nationalising private entities. The "crisis" is a golden opportunity to Socialize this nation's large businesses.
In Re: AIG, was the money given with any conditions, or strings, was it a loan? Are we now equity (stockholders) in AIG? Were those bonuses legally binding contractual agreements between employee and employer if so should AIG, anticipating (ignorant) public outrage, have breached those contracts and let the employees sue for damages and the bonuses. And finally if we, the taxpayer, loans money to these companies do we get a say in how the business is run (I say a creditor has no say unless the loan was given with abiding conditions). AIG is still the major sponsor of Manchester United football team one of the richest sport franchises in the world to the tune £56.5 million, to be paid over four years, starting in 2006, £14.1 million a year.
These so called bailouts were rushed, unexamined, and now are turning into a nightmare (and in my opinion a very large, the road to hell is paved with good intentions, mistake. Maybe along with the "separation" of church and state maybe the Constitution should have also said the separation of business and state.
"Somehow, I told you so, just doesn't quite say it." Will Smith in 'I, Robot.'
Expanded powers of the Treasury
Wed, 03/25/2009 - 10:08 ET by suburbaniteIf Obama and Geithner get their way, the administration will have expanded powers that will enable the government to seize troubled institutions. So I guess the definition of a troubled institution becomes an institution that doesn't accept TARP funds.
"Fight the good fight every moment
It's your only way" Triumph
But according to Krugman -
Wed, 03/25/2009 - 10:11 ET by Dan The Man 2But according to Krugman - this will cause problems because the healthy and unhealthy banks will be separated and that could force a run on the unhealthy banks. That could obligate the federal government to nationalize certain institutions.
Now this seems like the objective Obama and his handlers wanted in the first place. All his policies seem to be control of private enterprise. Baaa go the sheep, and there is a lot of Baaa's out there ... deafening.
What did Krugman get a Nobel for? He is a socialist collumist and what economics did he spout for his prize?
Nuke em til they glow then shoot em in the dark.
dan the man 2
Wed, 03/25/2009 - 10:23 ET by east tennessee johnkrugman got his Nobel for his work on trade and trade policies, I believe.
Arthur levit explains how the SEC fell short.
Wed, 03/25/2009 - 10:31 ET by sevenhttp://www.usnews.com/blogs/the-home-front/2008/10/16/arthur-levitt-how-the-sec-fell-short.html
We are seeing enron activities repeated.
NYT Answers
Wed, 03/25/2009 - 11:13 ET by JDWHow will the 'resolution authority' improve everything?
JDW
DAILY WAVE
The government works for me, not the other way around
Krugman is a typical liberal making excuses
Wed, 03/25/2009 - 12:06 ET by kgKrugman is a typical liberal making excuses and laying
blame for failure before events actually happen. Obama does this as well. Neither one has the guts to say their ideas
would never work.Why would any business want the government involved? The
government's track record and reputation is the definition of failure.
Fail-ure [feyl-yer]
an act or instance of failing or proving unsuccessful;
lack of success
a failure to do what one has promised
a condition of being
bankrupt by reason of insolvency
You couldn't get a closer description of our government if you treid.
"DumbAssity of Dope"
It will fail no matter
Wed, 03/25/2009 - 17:14 ET by RR GOPIt will fail no matter what.
Interesting that so many out there think that if just enough people think positive thoughts and get on board the train to Jonestown that all is going to work out.
One of the 34% who thinks George W. Bush was a great President. One of the 61% who wants to bring back the stock and pillory (yep...approval for Congress now at 39%...do you believe that!?).
Bailout Nation a failure? Who knew?
Thu, 03/26/2009 - 07:29 ET by JohnMcGrewDon't they get it? People & corony capitalists want free money. They don't want to be told what to do with it. Duh!