> Obama: "Obviously, Sweden has a different set of cultures in terms of how
> the government relates to markets and America's different. And we want to
> retain a strong sense of that private capital fulfilling the core -- core
> investment needs of this country."
>
> That clarifies it.
The Roubini excerpt in the Calculated Risk post sounded about right to me:
... "So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible."
Anyone buying the hypothesis, advanced by Krugman et al. today, that the stress test part of the plan is actually a "Trojan horse" to make nationalization politically feasible? -WD
http://krugman.blogs.nytimes.com/2009/02/10/the-rorschach-plan-wonkish-or-at-least-hard-to-read/ February 10, 2009, 1:51 pm The Rorschach plan (wonkish, or at least hard to read)
An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand.
I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation.
The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.
What is in it, in reverse order:
1. Super-TALF: a big expansion of the Fed's quantitative easing, with Treasury backing. I'm OK with that.
2. Private-public purchases of questionable assets; as I understand it, private investors would be the junior partners, so this is probably not a big giveaway (unless there's huge public financing, in which case it amounts to ring-fencing after all). I also suspect it wouldn't accomplish much, but no harm, no foul.
3. Stress test: everything depends on how this is actually implemented. What happens if, or more likely when, a major money center bank is stress-tested and found to have negative net worth? One possibility is that the auditors are told to come up with a different answer; that's a big concern. The other is that the bank is effectively nationalized; as I read the language that could be achieved as part of the public capital injection.
So what is the plan? I really don't know, at least based on what we've seen today. But maybe, maybe, it's a Trojan horse that smuggles the right policy into place.