Krugman on dithering

[Kidlicious]

Idiot Reagan really ****ed **** up.

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

-Keynes

[Naked Gents Rut]

No, they're dithering because they have an ideological aversion to nationalizing private property.

I agree that this is the reason. It's kind of crazy that the GOP is more pro-nationalization than the Obama administration.

[Naked Gents Rut]

[chequita guevara]

No, they're dithering because they have an ideological aversion to nationalizing private property.

I agree that this is the reason. It's kind of crazy that the GOP is more pro-nationalization than the Obama administration.

Well, if the Dem's were calling for nationalizing the banks, the GOP would be calling them communists. The GOP can get away with calling for it, cuz no one will call them commies.

[Naked Gents Rut]

The GOP can get away with calling for it, cuz no one will call them commies.

Agreed.

[Blaupanzer]

Obama's been in office a little over 60 days and you wonder why he hasn't fixed every problem?

[Naked Gents Rut]

No, I'm wondering why he hasn't made any discernible progress on fixing the biggest problem facing the country right now.

[chequita guevara]

Because he really can't. It's not like FDR, who was considerably more interventionist, was able to fix the economy during his whole presidency, let alone less than two months in. He can go, however, a long way in making sure we don't see bread lines and homelessness like we saw in the last depression.

[notyoueither]

I agree with Krugman. However...

They're dithering probably because they fear that if they nationalize the banks, the folks/foreign governments who hold mortgage-backed securities in vehicles set up by the banks (SIVs, especially with Citi) will demand that the US government make them whole.

Do we want the US government to feel obligated to pay to correct all of the bad decisions of these foreign government and individual investors? As far as I know, there's trillions of dollars in losses from the housing bubble bursting, and much of it is invested in these SIVs.

How does this sound?

http://baselinescenario.com/2009/03/06/bank-liability-guarantees/#more-2799

The story goes something like this. Let’s say that Citigroup were restructured - via bankruptcy, or via government conservatorship - in such a way that creditors did not get all their money back. (None of this applies to FDIC-insured deposits or to recently-issued senior debt that is explicitly guaranteed by the government.) They might be forced to convert debt for equity, or they might be stiffed altogether. The first-order concern is that this would have ripple effects that could take down other financial institutions. According to Martin Wolf, bank bonds comprise one quarter of all U.S. investment-grade corporate bonds; losses would be spread far and wide, hitting other banks, pension funds, insurance companies, hedge funds, and so on. If Citigroup did not support its derivatives positions, then institutions that bought credit default swap protection from Citi would face further losses. (I believe that most U.S. banks were net buyers of CDS protection, however.) The fear is that it will be impossible to predict how these losses will be distributed and who else might go down.

The second-order concern is bigger. After all, Lehman did not seem to force any major financial institution into bankruptcy, although it may have twisted the knife that AIG had already stuck in itself. Once investors figure out that bank debt is not safe, they will refuse to lend to any banks, and we are back in September all over again. Or almost: it is possible that the Federal Reserve’s massive efforts to provide liquidity to the banking system will be enough to keep banks functioning. But who wants to take that risk?

...

As an aside, one of the steps in Sweden’s sometimes-heralded bank rescue program was an explicit government guarantee on all bank liabilities. If any country could guarantee its banks, you would think it would be the U.S. But the real barrier to taking such a step is probably political more than anything else.

Yeah, political.... like how do you explain to voters that they have to take the hit for bad investments made by furriners while their own houses crash around them. Good luck with that.

[Dinner]

[Theben]

Wow... Mr Emanuel seems a little sensitive.

[chequita guevara]

How does this sound?
Yeah, political.... like how do you explain to voters that they have to take the hit for bad investments made by furriners while their own houses crash around them. Good luck with that.

Ooh, thanks for a talking point for me on May Day.

[chequita guevara]

It's amazing how much of my job the GOP wants to do for me, by sending the economy into a full blown Great Depression (number four).

[Kidlicious]

It's amazing how much of my job the GOP wants to do for me, by sending the economy into a full blown Great Depression (number four).

How were you going to do it?

[Arrian]

His job (he believes) = convincing people to be commies. Made easier by a depression. His job wasn't to cause the depression.

Quote:
The GOP can get away with calling for it, cuz no one will call them commies.

Agreed.

Yeah, there is a sort of "he's not Nixon so he can't go to China" thing going on here...

-Arrian