Paul Krugman also writes, "Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing. It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone."
Krugman also says, Let’s talk for a moment about the economics of the situation. Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets. As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.
But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.
Even more important, however, is the way Mr. Obama is squandering his credibility. More HERE
AAPP: Yes, Mr. Obama just may be squandering his credibility with black folks. He also seems to be squandering his credibility with a number of middle class black organizations such as the National Urban League. You see, the Urban League President recently said, "President Barack Obama should specifically address disparities in black unemployment, foreclosures, education and health care, the "National Urban League" in its annual “State of Black America” report.
Yes, finally middle class black folks are seeing the facts, and speaking up and out. Yes, the election of the first black president is great, yet, black folks, as the Urban League reports, are twice as likely to be unemployed, three times as likely to live in poverty and more than six times as likely to be incarcerated.
Marc Morial, president and CEO of the 99-year-old Urban League. has pointed out that Barack Obama has said that the way for government to help minorities is by improving things like education, employment and health care for all Americans. The 288-page report includes policy discussions and essays from academics, elected officials and average citizens. Among its 31 specific recommendations:
_ Ensure that the stimulus package’s green job creation includes poor urban communities.
_ Increase funding for job training and placement for disadvantaged workers.
_ Guarantee full-day schooling for all 3 and 4 year olds.
_ Expand the school day to account for working parents and families without nearby relatives to help with after-school care.
_ Fund mortgage counseling and education programs for minorities.
_ Implement universal health care and a “comprehensive” system to provide blacks with health education, prevention and intervention.
AAPP: It seems to me that the Trillion dollar give away, and other bail plans supported by Barack Obama, will have an end result of giving away American homeowners hard earned equity back to big business interest, will gentrify urban communities, and make sure that black and latino urban dwellers will not be able to afford to live in urban cities across America.
Maybe the American people, particularly African Americans need to watch the film Obama Deception. Take some time to watch the film, it may just open your eyes...