Let me first say that I am a big fan of Bonddad's cogent analysis. And I think his diary is a cool headed and rational (fair and balanced is a banned term in my sphere of influence) take on the Geithner plan.
Nevertheless, I come back to a phrase I coined as a precocious economics undergrad : "A house of economic analysis based upon a quicksand foundation - looks nice, but it sink."
You can never solve a problem on the level on which it was created.
Albert Einstein
Though I suffer from having earned a PhD in the dismal science, and years as an evil DC lobbyist, my bluest of blue collar roots have always kept me grounded in 'dinner table economics'.
For years I have maintained that the housing market would burst simply because escalation in prices had far out run the real ability of even couples with two substantial incomes to pay such prices.
Let's talk about incomes- globalization, de-industrialization have caused havoc upon many friends in my old hood - factories that provided jobs that paid $ 25/hr now house retail establishments that pay $ 8 - would you like a latte for that $ 4 or a share of Citibank - now that Geithner has just hired their chief economist away.
Your take Albert ?
"We can't solve problems by using the same kind of thinking we used when we created them.
Strip away all the regression analysis, statistics and everything else, the foundation of this plan is the dubious assumption that the 'legacy assets' - i.e. overpriced houses that few can afford - are worth something closer to their original speculative asking price.
Albert ?
If you can't explain it simply, you don't understand it well enough.
UNTIL WE EMBARK ON A SERIOUS REINDUSTRIALIZATION AND RELATED POLICIES THAT GROW THE INCOME SIDE OF THE EQUATION, WE ARE SCREWED.
For one thing; small business will be at the heart of any recovery, and if we can't expand SBA loans through the banks, why not have the Government or the Fed lend directly, or indirectly through community banks, and credit unions; rather than continue to pump up the Wall Street behemoths that caused this mess.
Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction.
The stranglehold that the Clique of Rubin has on the economic advice and information getting to the President is eerily reminiscent of how The Dick (Cheney) was able to control his W puppet in many respects ....and today we learn that Citi's 'top' economist, WHO WAS WRONG about nearly everything is joining Geithner's understaffed team !!!!!
Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein
Whether this program is merely recycled Paulsonian 'trash for cash' is debatable.
What to my mind is not debatable is Bonddad's on the money call of the issues with the program:
These two points are critical. There is nothing forcing banks to participate in the program. And that is the real problem. And there is a big reason keeping the banks from participating: finding out that various assets aren't worth anything.
If real people, not speculators, hedge fund guru's and other croupiers of the Wall Street Casino, can't pay for this real estate, the assets aren't worth much, and the plan's chances are not good.
This brings out the other key point on AIG - most of the bailout money is being paid to counterparties such as Goldmine Sachs, as if the assets worth 100 cents on the dollar ..to quote Lewis Black ...'How f'in dumb is that ...or as as Einstein would say ..... insane.
If these outfits are too big to fail they are too big period - we need to reverse yet another wingnut policy failure, and apply some antitrust principals and start cutting these oversize behemoths down to manageable size.
Bonddad Hale, for Treasury Secretary...apply the Peter Principle and as Arianna posted today- move Geithner out of harm's way.
ps. Bonddad has posted a video with excellent analysis by John Galbreath - the opportunities for the banks to game the system are great - this is Wall Street Socialism
http://bonddad.blogspot.com/