Ph’nglui mglw’nafh Krugman R’lyeh wagn’nagl fhtagn! Aiiiiiii!!!

It’s worth revisiting the point in January 2002 when Paul Krugman predicted that Enron and the system that allowed it would have a more lasting impact on America than 9/11.

Sept. 11 told us a lot about Wahhabism, but not much about Americanism.

The Enron scandal, on the other hand, clearly was about us. It told us things about ourselves that we probably should have known, but had managed not to see. I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.

It still seems like a fair comparison. The lessons of both Enron and 9/11 went largely ignored in Washington, so we can think of them a matched pair. Let’s grant that Iraq, spying and torture have no more to do with 9/11 than (cue the tortured cries of Mike Godwin) a burning building caused WWII*. It seems fair to grant that even a guy like Krugman, who anticipated a lot, could not predict that only a tiny handful of the imponderably multitudinous possibility branches that filled a time-space light-cone centered on the 2001 attacks could out-stupid the next six years of Bush.

On the other hand, Krugman and a minority of others did not need a crystal ball to see a landscape crowded with firms like Enron. Fiscally speaking these firms lived on nothing. Many, especially but not exclusively derivatives traders, engineered complex schemes that had the ultimate effect of making a financial dirt sandwich look nutritious. These bogus schemes succeeded so well that by the early Bush years ginormous firms had already died, financially speaking, but still walked around because they didn’t know or wouldn’t admit it.

At one point a regulatory framework kept stinkier firms from chewing through too many brains legitimate enterprises, once, but twelve years of Reagan, eight years of Clinton (who, in a fair world, would be CATO’s favorite living president) and eight more years of fundamentalist Clif’s notes Reaganomics took care of that. By 2002 clued-in economists like Krugman and Nouriel Roubini must have looked at the national scene and seen late-period Romero.

Then there’s the twist that even Krugman may not have seen coming. Who would guess a large enough pack of zombies could go on feeding even after everyone from illiterate no-English farmhands all the way down to Michelle Bachmann realized what was happening? Read DougJ’s post below. Check out the graphs at Drum’s. It seems obvious as hell, now, while we watch Dr. Gramm’s undead experiments gnawing away at the federal government.

If I drag this analogy out a little further**, maybe now everyone knows they should have listened the crazy-sounding expert with the stories about the zombies, the alien brain worms, the volcano that we all thought went cold, the gremlin on the wing or whatever. Given time they might start listening to him.

They laughed at me in the academy.

Crazier things have happened.

(*) Strong chance that this minor point will consume the thread. Oh well.
(**) Only one thing will kill this metaphor.

88 replies
  1. 1
    gocart mozart says:

    McConnell !

  2. 2
    craigie says:

    How they laughed when Krugman made that comment about Enron.

  3. 3
    AnneLaurie says:

    It seems obvious as hell, now, while we watch Dr. Gramm’s undead experiments gnawing away at the federal government.

    Excellent, and much-needed, post, TimF. I know the Secret Service will never let us get our hands on Darth Cheney, she said wistfully, but do you suppose we might yet be able to mete out some old-school pitchfork’n’torch justice to Phil Gramm, lifelong welfare parasite and mass fiscal murderer?

  4. 4
    benjamin says:

    Krugman is also the guy that said Obama could never win and he was running a terrible campaign and Hillary Clinton was the progressive candidate and yada yada.

    Let’s face it. Brilliant economist. Terrible judge of politics.

    And the bottom line is the administration has to deal with both what is best for the economy and what is politically achievable.

    Krugman can afford to just bitch on the side. TPTB on the other hand have to balance the two.

  5. 5
    El Cid says:

    Krugman said Obama could never win? Really? When?

  6. 6
    El Cid says:

    From the extremist communists running the editorial board of the New York Times:

    Any serious call for reform has to acknowledge the severe institutional damage that has been done to the nation’s regulatory agencies. For 30 years, the political tide in this country has run against regulation and for deregulation. In the last 10 years, opponents of financial regulation have been especially successful in dismantling and undermining regulation — putting their faith and the nation’s future in the hands of a market discipline that turned out not to exist and can’t-miss financial products that missed, big.

    There is not an agency that has not suffered a diminution of expertise or reputation.

    Recent examples include the Federal Reserve’s repeated failures to use its consumer-protection authority to stop unfair mortgage lending; the Securities and Exchange Commission’s failure to heed repeated warnings about the Madoff Ponzi scheme; the efforts by the Office of the Comptroller of the Currency, a bank regulator, to block state regulators’ efforts to police lending violations; and the utter failure of the Office of Thrift Supervision, A.I.G’s federal regulator, to understand — or, even worse, care about — what was going on at that company.

    Unfortunately, there are many, many more examples. Advocates of deregulation point to the failures as evidence that the government has no intrinsic ability to police markets. That is incorrect. The nation’s regulatory agencies have been allowed to languish, underfunded, understaffed — and too often headed by political appointees who are true believers only in the dogma of deregulation and not in their agencies’ missions.

    If the United States is going to have meaningful reform of its out-of-control financial system, new rules will only be a first step.

    By the way, Krugman’s still correct about one major, gigantically important thing: nobody has openly and clearly stated how the administration will deal with insolvent financial institutions.

    As Nouriel Roubini points out, the only solution for insolvent financial institutions is nationalization.

    Apparently the Geithner plan directly addresses dealing with the toxic assets of solvent institutions, and the legislation the administration is submitting to Congress may very well allow the nationalization of said insolvent (but non-bank) institutions.

    So, although the administration might very well be intending to pursue what appears to be the only available option with regard to our giant insolvent financial institutions, they aren’t clearly saying so.

  7. 7
    Mayken says:

    @Benjamin and El Cid – although I don’t think Krugman ever came out and said Obama could not win, he did make several "electability" arguments such as stating that a backlash over his "mystique" and that Clinton was more credible on economic issues at a time when "it’s the economy, stupid" was a phrase much in vogue again.
    That Krugman has been a constant critic of Obama as not progressive enough etc. is common knowledge however. And while I am willing to listen to Paul on a lot of issues, I agree that it is really easy for him, just like me, to sit on the sidelines and whine about the ones who actually have to do the governing.

  8. 8
    robertdsc says:

    Tim, is that Klingon in the title?

  9. 9
    R. Porrofatto says:

    It goes without saying but I’ll say it anyway — when he was criticizing the Bush administration’s worst excesses as they set in motion the present catastrophe does anyone remember Krugman’s face being on the cover of any magazine with the words "BUSH IS WRONG"?

    I guess our brave liberal media is off its knees now for some reason.

  10. 10
    John says:

    Tim, is that Klingon in the title?

    It’s a line spoken by worshippers of the dread Old One Cthulhu (with "Krugman" here substituted for Cthulhu). It means "In his house at R’lyeh dead Krugman waits dreaming."

    Perhaps some light can be shed on this from the famous line in Abdul Allhazred’s Necronomicon

    That is not dead which can eternal lie.
    And with strange aeons even death may die.

    Presumably it points forward to the time when Mr. Krugman will awaken from his dreaming death in the sunken city of R’lyeh to plunge the world into madness and devour it.

  11. 11
    mike the dealer says:

    @Robertdsc

    I’m pretty sure it’s cthulhuian

  12. 12
    slightly_peeved says:

    I agree that it is really easy for him, just like me, to sit on the sidelines and whine about the ones who actually have to do the governing.

    I reckon he’s right on a lot of things, but I have to disagree with him on this (from his column "about that advisory board" on November 26, 2008):

    (And for those of you wondering about yours truly — I’m temperamentally unsuited, have never had any desire for the job, and probably have more influence as an outside gadfly than I ever could in DC.)

    Assume the botching the handling of this financial crisis could lead to a world depression. If Krugman is certain that he knows the correct way to handle it, and that Obama’s current plan to handle it could significantly damage the world economy, isn’t there a moral imperative for him to seek the job? He may not be suited for the job, or desire it, but I would the millions of people whose livelihoods would be affected would not want that discomfort stopping him if he knew what to do.

    I mean, I’m pretty well trained in martial arts and have sparred a lot, but I’m a little bloke and I don’t have much desire to get into fights. But if I saw someone attack and beat the crap out of someone on the street, and I knew the person hadn’t done anything wrong, I’d feel a moral imperative to step in. I’d think saying that I had no desire to fight, or that I’m temperamentally unsuited, would be considered a bit of a weak excuse under the circumstances.

  13. 13
    Radon Chong says:

    @robertdsc: I believe we have the Poor Man Institute to thank for coming up with the Kth’rugman meme. Truly an inspired work of comic genius. If only the Editors would post more often…

  14. 14
    jill says:

    I’m sure Krugman is brilliant and knows what he’s talking about, but he also has a bit of butthurt going on in the things he says. Like whining Obama didn’t pronounce his name correctly.

  15. 15
    Dennis-SGMM says:

    @El Cid:
    Nationalization may be the only solution for the walking dead financial institutions. I don’t know because my knowledge of economics doesn’t go much beyond paying my bills and keeping some money set aside for a rainy day.
    What I haven’t seen clearly explained is what the effects of nationalization would be on pension funds and 401K’s. There is a wave of Boomers looking to retire and, behind them a wave of GenX and GenY folks looking to move up. No matter how rational nationalization may be, if one of the effects is that the Boomers have to work until they die and their successors are compelled to wait until they do, then nationalization is political suicide.

  16. 16
    daveinboca says:

    Krugman’s expertise with Enron came from a highly-paid consultancy that Enron paid this fraud while he presumably told them what they wanted to hear.

  17. 17
    cyntax says:

    @Dennis-SGMM:

    No matter how rational nationalization may be, if one of the effects is that the Boomers have to work until they die and their successors are compelled to wait until they do, then nationalization is political suicide.

    My thought on that is that the underfunding of pensions is much more of an immediate threat than nationalization, and that nationalization would probably be better for the health of pensions in the long run. So I guess, yeah, that probably does mean it’s political suicide.

  18. 18
    Cerberus says:

    Ugh, that cover is so symbolic of what is wrong in this country. From the "policy disagreements are emblems of hate and battle" of the imagery, the "shock" headline to suck you in that serves mainly to create a false narrative, even the fact that moderate left or far left voices who tend to be right about the long issues are ignored until the point that there are literally no credible right-wing voices to turn to anymore.

    We desperately need better media.

    On the other hand, at least they’re recognizing Krugman’s complaints. I know its not a too popular opinion on the blog right now, but it’s still a good thing that the media is actually paying attention to pushes from the left because such pushes change policy into better policy and allow Obama’s centrist ideas to remain centrist ideas rather than have him selling the cow further for right-wing "ideas" like more tax-cuts and removing the central benefits.

  19. 19
    Cerberus says:

    But great post Tim. It’s eternally frustrating for any left-sided activist that they tend to be correct and ignored when most important and afterwards, when the damage is done, they are still dismissed and ignored even when they’re statements have become common wisdom. Some sort of hippie allergy or something or maybe the general dislike of people who were right to begin with as it messes up the narratives of "no one could have seen this coming" and might also lead to evil notions like listening to the left more often.

  20. 20
    cyntax says:

    @slightly_peeved:

    isn’t there a moral imperative for him to seek the job?

    Seems to me your quote of him answers your question: He thinks he’ll have more influence from outside the adminstration. So you and he are sizing up the problem differently (you’re thinking the place with the most influence is inside the admin, he thinks it’s outside).

  21. 21
    MeDrewNotYou says:

    For all you poor suckers that the Old Ones will devour last (we faithful are eaten first!), the post title means, "At his house in R’lyeh, dead Krugman waits dreaming; it is so!" I find it blasphemous to followers of Cthulhu, but that’s Tim’s problem. (Or, what John said @10)

    Personally, I follow Shub-Niggurath, what with all the sex, drugs, and rock-and-roll her people are into. I mean, Cthulhu is swell and all, but killing things isn’t for me.

    As for Krugman, I’m starting to see him as an anti-Bill Kristol. Whereas Bill seemed to write in Opposite Land, Krugman seems eerily right about the mess we’re in. Certainly he’ll screw up eventually, but for now, if I may shamelessly rhyme, Paul’s on the ball.

  22. 22
    bob h says:

    Yes, what Krugman saw presciently at the time was that capitalism could be destroyed by the erosion of trust. That should have been a wakeup call to Greenspan and Bush, but the former was too self-infatuated with his own celebrity, and the latter simply did not take his job seriously.

    But his call for nationalization of all the big banks and their dismemberment is just too radical to fly; we are going to have to be content with very stringent regulation that leads them to self-downsize as the entire financial sector becomes less profitable.

  23. 23

    @MeDrewNotYou:

    Shub-Niggurath

    Lightweight. Ghanatothoa could kick Shub-Niggurath’s thousand bony arses.

  24. 24
    Captain Haddock says:

    I seem to have misplaced all my previous Newsweek covers — you know the ones where experts declared Bush wrong…

  25. 25
    Woody says:

    we are going to have to be content with very stringent regulation that leads them to self-downsize as the entire financial sector becomes less profitable.

    "thePrez" said last week somewhere that there were not gonna be any repeals of Gramm/Leach/Bliley, and there wasn’t gonna be any repeal odf the repeal of Glass Steagall. So, given that any NEW regulation is gonna have to go through a Congress which is NOT terrified of rioting, starving, unemployed War veterans, why do you think there’s gonna be ‘strict regulation?’

    Shit, yesterday, Liddy, the AIG shitwhistle, says he doesn’t support returning the separation of investment from commercial banks.

    When have the Obamistas denied the banksters ANYTHING?

    By the way, ‘Kapialismus’ is the predictable victim of its own inner–what mMarx calle "immanent’–contradictions. Even one of it’s fondest exponents, Jos. Schumpeter, predicted its demise…

  26. 26
    Lennox says:

    Hate to quibble, but your homegirl was the basis for the antagonist in Stephen King’s IT… I’d say that’s some killin’

    Personally, I follow Shub-Niggurath, what with all the sex, drugs, and rock-and-roll her people are into. I mean, Cthulhu is swell and all, but killing things isn’t for me.

  27. 27
    Redhand says:

    But his call for nationalization of all the big banks and their dismemberment is just too radical to fly; we are going to have to be content with very stringent regulation that leads them to self-downsize as the entire financial sector becomes less profitable.

    When you consider the anger that a huge majority of people have about money-for-nothing compensation at the top of the financial sector, it seems to me that Obama could do at lot more than let these thieves "self-downsize." I think the country is ready for more "radical" solutions. It’s actually way past time for them.

  28. 28

    […] Tim F points to a rather prescient January 2002 Krugman column: One of the great cliches of the last few months was that Sept. 11 changed everything. I never believed that. An event changes everything only if it changes the way you see yourself. And the terrorist attack couldn’t do that, because we were victims rather than perpetrators. Sept. 11 told us a lot about Wahhabism, but not much about Americanism. […]

  29. 29
    slightly_peeved says:

    So you and he are sizing up the problem differently (you’re thinking the place with the most influence is inside the admin, he thinks it’s outside).

    This is certainly the crux of my disagreement with him. How long can one rail against the policies of an administration while claiming that one has more influence outside of the administration? If you have influence, surely the differences between your views and the administration’s policies would decrease over time, and you’d have less to complain about in your column.

    This may still happen of course (here’s hoping).

  30. 30
    Napoleon says:

    @slightly_peeved:

    The entire premise of your comment on Krugman is wrong. Regardless of how much he may or may not want to work in the administration is irrelivant. The decision is really not his to make, and it is clear from the other administration staffing decisions that they do not care to have someone like Krugman, who forsaw the current problems to some degree while others did not, and instead prefer to hire people for economic positions that missed seeing the problems we now have coming down the road. Joseph Stiglitz, Nouriel Roubini and other economist like Krugman and foresaw problems were systematically excluded from consideration. The closest Obama came to hiring someone who was, you know, right on the ecomony in the recent past was Jered Bernstein, and he was hired by Biden, not Obama.

  31. 31
    AustinRoth says:

    Krugman, despite my dislike for him, is indeed a brilliant economist. And he is a good observer and writer of things outside his specific area of expertise.

    However, like all economists, he is used to being wrong a good % of time, whether talking economics or in other areas. He also has the advantage of writing a LOT of things, meaning that over time it becomes easier to find things he predicted in the past that are now true. We will conveniently forget about the wrong predictions, though, as we always seem to do with favored prognasticators.

    All that said, there is no doubt he was ahead of the curve in saying the financial Emperor had no clothes. But that doesn’t mean he is right on how to make clothes for him.

    Finally, the only solution to insolvent banks (or any insolvent institution) is NOT nationalization; there is a time-tested and proven alternative – bankruptcy.

    It is painful, but what emerges after is healthy, and the taxpayer is not left footing the bill for the ‘toxic assets’ while the new investors get the subsequent profits (which will NOT be those same, unfortunate taxpayers. Even Obama has said his plan requires banking and financial sector involvement to succeed, which is the real reason they are burying the bonus tax bill)

  32. 32
    Patrick says:

    There is nothing in the Geithner plan the precludes nationalization. If we nationalized, we would have to sell off the toxic assets anyway. We will probably get better prices with the current plan than a fire sale after nationalization (see the recent bath the FDIC took on IndyMac).

    So, Geithners plan is cheaper and doesn’t preclude nationalization later. What is Krugman’s real beef? Does he believe that time is short? As Delong says, if Geithner’s plan doesn’t work 100%, the table would be set for nationalization. Krugman believes that if Geithner’s plan doesn’t work, there will be less political will for nationalization. I go with Delong on this; and Krugman being on the cover of Newsweek helps Delong’s position and ironically hurts Krugman’s.

    I think Geithners plan and time will cure all the zombies except Citi. The economy can grow with or without Citi. It might be Too Big To Fail, but that doesn’t mean it is Too Big To Stifle Growth. If all the other banks are healthy, then you could nationalize/bankrupt Citi (or do nothing) and it would be much cheaper than nationalizing 3-8 huge banks now.

  33. 33
    Aimai says:

    Can people stop botching about how krugman was some kind of puma becausebhe didn’t immiediatly fall under the Obama glamour? He’ll, try to remember that early in the primary season it was not clear that Obama was inevitable, the republicans hadn’t entirely screwed the pooch yet and like a lot of liberals and leftists krug( and I) were not sure Obama was angry and vengeful enough for our tastes. I walked away from a small early fundraiser with michelle thinking " Jesus they are justbnot angry enough forbme." and I worked and donated and votedbfor Obama. Just having thought that Obama couldn’t win doesn’t make krugman a dyed in the wool puma. Itvjyst means he was wrong in hisbcalculations before the election.

    Aimai

  34. 34
    Comrade Jake says:

    Why didn’t Krugman just come out and say "I hope Obama fails." That would’ve made for a better quote on the cover.

  35. 35
    El Cid says:

    So, Geithners plan is cheaper and doesn’t preclude nationalization later. What is Krugman’s real beef? Does he believe that time is short? As Delong says, if Geithner’s plan doesn’t work 100%, the table would be set for nationalization. Krugman believes that if Geithner’s plan doesn’t work, there will be less political will for nationalization. I go with Delong on this; and Krugman being on the cover of Newsweek helps Delong’s position and ironically hurts Krugman’s.

    It is correct that Geithner’s plan does not preclude nationalization for firms which are proven (by Geithner’s own stress test) to be insolvent.

    My guess is that Krugman’s ‘beef’ is that he is assuming that if politicians are not talking openly about the nationalization that will be required for insolvent firms that they will not be willing to do so when it is necessary. This frightens and angers him.

    I guess as well that Krugman, like Roubini, feels that when the truly insolvent firms are revealed and nationalization required, it will prove to be ugly, frightening, and expensive.

    This is a guess. For myself, I don’t know what to assume, but as a citizen (and not a political adviser) I am not comfortable assuming good will and commitment to right policies from political leaders — though personally I’m not yet assuming that when nationalization is necessary that the administration won’t.

    And while I do not share this view yet, I am not going to be angry with people who get p***ed off that the administration appears to be hedging on this question. (Even though, yes, they could be hedging for truly justifiable strategic reasons.)

    Krugman’s appearance on the cover of Newsweek is absolutely irrelevant to any of his arguments, and it’s a really stupid point to make. This is the same magazine which weeks ago had the "Socialism" cover for an article which overall was actually quite sane and mostly telling people to shut up screaming about ‘socialism’.

  36. 36
    Klaus says:

    Patrick:

    There is nothing in the Geithner plan the precludes nationalization. If we nationalized, we would have to sell off the toxic assets anyway. We will probably get better prices with the current plan than a fire sale after nationalization (see the recent bath the FDIC took on IndyMac).

    You do know the Geithner plan is about the government buying the toxic assets, not taking them over and selling them?

  37. 37
    Micheline says:

    @Klaus:

    My problem with Krugman is that he makes nationalization is cheap when in fact it is hugely expensive,. And besides nationalization doesn’t get rid of toxic assets. You have to find a way to create a market for them. Please don’t tell me about the FDIC. On average they 3 banks a year. And all the banks they have taken over were small. They weren’t done simultaneously.

    Krugman acts like the Swedish model is a magic bullet. Sweden’s economy didn’t immediately turn around as it has been portrayed by some in the media.

    Here is a summary of what happened in the 1990s:

    During the mid-1980s economic growth again rose, driven by good exports. Overall, however, growth in the 1980s, as during the 1970s, was slower than the EU average. The deregulation of the credit market contributed to a very rapid increase in lending, largely focusing on the real estate sector. Sweden developed a banking and financial service bubble, which burst in the early 1990s in conjunction with an international economic slowdown and a restructuring of the Swedish tax system. As in most other countries, economic policy was restructured in order to prioritize low inflation. The economy entered its deepest crisis since the 1930s. Between 1990 and 1993, GDP fell by 5%, while employment declined by nearly 10%.

    Falling GDP and lower employment resulted in a sharp deterioration in public sector finances. In 1994, the central government budget deficit exceeded 15% of GDP. Due to the combination of low growth during two decades and the severe economic crisis, Sweden fell from third place in the prosperity league (measured as GDP per capita adjusted for purchasing power) in 1970 to ninth place in 1990. During its crisis, Sweden slid further to 16th place but later bounced back a bit in the rankings and stood at 13th place by 2004.

    Don’t get me wrong the Swedish model is better than the Japanese model. I just think that Krugman, Atrios et al are overselling the Swedish model.

  38. 38
    Booger says:

    Krugman has a house in R’lyeh? Damn!! That’s friggin awesome!

  39. 39
    Anton Sirius says:

    @John:

    That is not dead which can eternal lie.

    I was about to post the Mad Arab’s famous couplet myself.

    Because if we’ve learned anything, it’s just how good some of these hellspawn are at lying.

  40. 40
    El Cid says:

    @Klaus:

    You do know the Geithner plan is about the government buying the toxic assets, not taking them over and selling them?

    Quite a number of observers, including but not limited to Roubini, view the Geithner program as the ‘least worst’ plan to discover value and sell assets held by solvent institutions since right now there is no market for them — no one willing to engage in buying and selling.

    From my temporary sanity crutch Roubini:

    Secretary Geithner’s recently announced plan is a step in the right direction in that it creates a “Public-Private Investment Program” to purchase the troubled assets of financial firms, in other words, to do this cleansing.

    Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will be a hard swim, but, at least, there is a path to shore. This is the likely reason the equity market responded so well yesterday.

    The plan essentially calls for private asset management firms – private equity, hedge funds, mutual funds, pension funds – to invest side-by-side with the government. The government will also lend up to an additional six times the initial money. The plan needs the government because there are so many bad loans and securities held in the financial sector that only the government’s balance sheet can handle taking them over. The government needs help from private investors so they don’t get hoodwinked by the banks.

    Why would investors participate? The government’s loan is structured so that the firm will only be responsible for losses on their initial investment. This is a huge sweetener. The hope is that this "freebie" will induce many investors to participate. The competition among them will lead to higher offer prices for the loans and securities, thus encouraging banks to sell them.

    A lot of ifs, but if indeed successful, the plan accomplishes mission number one, namely the removal of the bad assets from the bank’s balance sheets. Even if banks wanted to do this on their own, they can’t because the market for these illiquid assets has dried up.

    But it’s not all roses in Roubini’s view:

    But let’s not have any illusions.

    The government bears the risk after first losses of the loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent that there is still a wealth transfer taking place from taxpayers to investors and banks.

    Also, while this is pretty clearly in the Treasury’s plan, many of the big guarantees are placed in the hands of the FDIC and the Fed. Why not only use Treasury facilities like TARP? Well, the administration would have to deal with Congress to appropriate more funds. While the events of last week and their ill-conceived compensation bill suggests this end around might make sense, there is something a little worrying about circumventing the legislative system in place.

    Finally, a big problem is lack of transparency in the system – no one knows what the loans or securities are worth. Competing investors will help solve this by promoting price discovery. But be careful what you wish for.

    Some banks will most likely resist selling their loans and securities. Why? Currently, the government has been providing them a free option to continue holding them with the hope that market conditions will improve.

    The government must, however, insist on the bank’s involvement in the program. The reason that financial institutions should be “pressured” is that they are the cause of the financial crisis. They took advantage of loopholes to avoid regulatory requirements, taking a huge bet on securities they were never meant to hold in the first place.

    That’s the "positive" view from someone who’s anything but a cheerleader. Otra vez, this is the definition of "positive" meaning "least worst".

    Again, this approach is argued to not be relevant for institutions which prove to be insolvent. No one appears to be talking about how many or how large those institutions will prove to be. Maybe it will prove to be few. Myself, I get kind of nauseous thinking about that question too much.

    But what happens if removing toxic assets from the bank’s balance sheet at near market prices shows it is effectively insolvent? This is a real possibility.

    Then we will have to face the big elephant in the room.

    So far, due to the lack of transparency about the conditions of large banks, policymakers have been able to throw around lots of money to keep insolvent banks afloat in order to avoid systemic risk.

    But once the truth is revealed, perhaps we will have to start asking, "Why keep insolvent banks afloat?" And having asked that, we will have to turn our minds to a search for ways in which to manage the ensuing systemic risk.

    Either way, once the plan is fully implemented, we will be entering a new phase of the financial crisis. Let’s hope we are strong swimmers.

    To clarify my viewpoint: I see the Geithner plan as being relevant only to banks that are solvent. For those that are found – after stress tests – to be insolvent I see as the proper solution – -as I have widely written – to nationalize them and thus clean them up to prepare them for re-privatization.

    The stress test should do a triage between banks that are illiquid and undercapitalized but solvent given the provision of capital and liquidity and those that, under a reasonable stress scenario are effectively insolvent. Those that are insolvent should be nationalized.

    And all those questions still remain.

    What happens if banks resist "pressure" to participate in the ‘stress tests’ and Geithner plan to sell off toxic assets?

    We don’t know.

    What happens if financial institutions (non-bank) which do then prove to be insolvent and for which the only answer is nationalization? Will that be done?

    We don’t know.

    What will happen to a variety of investments and assets that insolvent financial institutions have if nationalization is required?

    We don’t know.

    If additional funds and funding sources are needed in order to carry out the nationalizations which appear to be the only options for institutions which are truly insolvent, how much will they likely be, and from where will they come?

    We don’t know.

    And this is the most ‘optimistic’ I’ve felt in a while. Or, more honestly, ‘least pessimistic’.

  41. 41
    Anton Sirius says:

    @Comrade Jake:

    Why would they need to wait for him to actually say it? This is Newsweek.

  42. 42
    Anoniminous says:

    @El Cid:

    As Nouriel Roubini points out, the only solution for insolvent financial institutions is nationalization.

    To which I would add aggressive efforts by the Federal government to claw back the money "earned" (sic) by the people who drove us into this mess.

    If we don’t close-the-loop – as did NOT happen with the Savings and Loan debacle!, – we’re looking at this again in about 20 to 30 years.

  43. 43
    Hyperion says:

    @El Cid: awesome block quote. i bow to your formatting skills!

  44. 44
    El Cid says:

    I accidentally did a strike-through somehow. One of the Roubini quotes should be:

    For those that are found – after stress tests – to be insolvent I see as the proper solution – as I have widely written – to nationalize them and thus clean them up to prepare them for reprivatization.

  45. 45
    Hyperion says:

    Bill Moyers Journal had a fellow (Greider?) on who had an interesting analysis i haven’t heard made else where: the administration and congress like the idea of the FED being in charge of the cleanup. Problems just magically disappear into that black box and the no accountability moment turns into a eternity. but Treasury gets to look like a protector of our (remaining) assets. win, win, win.

    i can see how the congress must be slobbering over this possibility: "You mean, we get to continue to demagogue and NEVER have to read the bills or make HARD decisions? Yay, us."

    This does not look like change to me and I’m having trouble believing in it.

  46. 46
    Shawn in Showme says:

    My problem with Krugman is that he makes nationalization is cheap when in fact it is hugely expensive,. And besides nationalization doesn’t get rid of toxic assets

    There’s as many numbers in Krugman’s nationalization proposal as there are in the GOP’s budget proposal. The GOP leadership is dominated by short-sighted, unserious morons. What’s Krugman’s excuse?

  47. 47
    El Cid says:

    @Shawn in Showme: There are no numbers in anyone’s nationalization ‘proposals’, primarily because no information is being released (either by banks, non-bank financial institutions or the administration) as to which institutions are insolvent (assuming it were even possible to say so at this point), and therefore what the costs would be.

    (And of course, prominent figures and government officials are going to be very leery of hastily suggesting that some institution is insolvent, because the ball will start rolling a lot faster at that point, perhaps faster than anyone can keep up.)

    I would guess that to be Krugman’s, Roubini’s, and Geithner’s "excuse" as to why there are currently no estimates as to what the cost of nationalization of insolvent firms might be.

  48. 48
    Shawn in Showme says:

    There are no numbers in anyone’s nationalization ‘proposals’, primarily because no information is being released (either by banks, non-bank financial institutions or the administration) as to which institutions are insolvent (assuming it were even possible to say so at this point), and therefore what the costs would be.

    Krugman has already called out Citi and BofA in his column so that would be a nice place to start. I’m just looking for a ballpark figure here.

  49. 49
    AnneLaurie says:

    That is not dead which can eternal lie.

    I understand this is the quote Darth Cheney wants on his memorial (in an undisclosed location).

  50. 50

    Regarding the Newsweek article: anyone besides me notice that it spends very little time explaining Krugman’s criticism of Geithner’s plan? Instead, it’s mostly a fluff profile piece that really doesn’t explain why "Obama is wrong".

  51. 51
    passerby says:

    @Comrade Jake:

    W

    hy didn’t Krugman just come out and say "I hope Obama fails." That would’ve made for a better quote on the cover.

    Heh.

    I wonder if Krugman, a competent economist, is aware that he is being used as a media monkey. Has he allowed himself to be seduced by the celebrity afforded him by his Nobel Prize? Certainly he could have said "no" to Newsweek while maintaining a presence on the Sunday talk circuit where he has more control over his message.

    He strikes me as being a sincere man and right now he appears to be swimming with sharks.

    @AustinRoth:

    Finally, the only solution to insolvent banks (or any insolvent institution) is NOT nationalization; there is a time-tested and proven alternative -bankruptcy.

    Yes, and amazingly, the "too big to fail" excuse has shut down (nearly completely) any and all talk of bankruptcy as an option. Anyone attempting to broach that as a solution will be viewed as too ignorant to participate in the debate. "Too big to fail" is the gun to our heads. How convenient for the fat cats.

    [ Blockquote oopsie: W + hy = Why ]

  52. 52
    Micheline says:

    @Chris Andersen: Yes and that’s why I think Krugman is being used by the establishment as cudgel against Obama. Nothing wrong with criticizing the president but lets be honest the media is not covering this debate in a honest manner. The article adds more heat than light.

  53. 53
    valdivia says:

    @Chris Andersen:

    yes Chris which is why I think it confirms the idea that this is just a way to say Obama sux and not to push the agenda to the left.

  54. 54
    passerby says:

    @El Cid:

    @Shawn in Showme: There are no numbers in anyone’s nationalization ‘proposals’, primarily because no information is being released (either by banks, non-bank financial institutions or the administration) as to which institutions are insolvent (assuming it were even possible to say so at this point), and therefore what the costs would be.

    And Shawn in Showme, the ballpark would be the size of the Sahara Desert given that the "off the books" trading and shennanigans are probably in the double digit trillions. [Puts on tinfoil hat] Fraud is likely. Hiding their crime is the gun to THEIR heads.

  55. 55
    Napoleon says:

    @passerby:

    Yes, and amazingly, the "too big to fail" excuse has shut down (nearly completely) any and all talk of bankruptcy as an option. Anyone attempting to broach that as a solution will be viewed as too ignorant to participate in the debate.

    That’s because you are ignorant if you think bankruptcy is an option. There is a reason that the US has not allowed even a single bank bankruptcy since the day FDR took office.

  56. 56
    QrazyQat says:

    I think there’s a good point about Enron being more critical in our history than 9/11, because while we know now that 9/11 could likely have been prevented had the Bush administration merely handled terrorism the same way the Clinton administration did, it did require specialised intel. Seeing Enron and the other financial diasters coming simply required reading the paper and some financial statements and doing simple grade school math.

    BTW jill@14, did Krugman actually ever complain, or even mention, Obama’s mispronounciation of his name? I haven’t noticed it, although Rich Karlgaard at Forbes mentioned it and claimed it was deliberate, a position that met with ridicule. But enlighten me.

  57. 57
    passerby says:

    @Napoleon:

    That’s because you are ignorant if you think bankruptcy is an option. There is a reason that the US has not allowed even a single bank bankruptcy since the day FDR took office.

    Okay, then school me. Why aren’t banking institutions allowed to go bust?

    Seriously, why? (or why not?)

  58. 58
    hal says:

    "It goes without saying but I’ll say it anyway—when he was criticizing the Bush administration’s worst excesses as they set in motion the present catastrophe does anyone remember Krugman’s face being on the cover of any magazine with the words "BUSH IS WRONG"?
    I guess our brave liberal media is off its knees now for some reason."

    This, in a nutshell, is the problem I have with Krugman, in his capacity as Official Obama Critic (trademark pending.) I wonder if people realize that Krugman isn’t say "Obama is wrong! Vote Republican!" He’s saying, "I don’t want Obama to continue with his current plan, I want him to do this instead." But the effect is that look! Even dirty, bearded hippie liberals hate Obama’s plans…I fear Krugman is ultimately playing into the hands of conservatives who played a very large part in getting us into this mess, and they will use him as exhibit A in the midterm elections. Of course, if the economy has improved by then, the dems in 2010 and Obama in 2012 will probably sail to victory…but…

  59. 59
    hal says:

    I also found Krugman’s political analysis to be shrill, short sighted, and as it turns out, largely wrong. He was not a PUMA, but as far as he was concerned, Obama was just not going to make it because he was not partisan enough, and Hillary was. I might be wrong, but I think Krugman actually wanted John Edwards (which personally makes me doubt his intellect a bit), and not Hillary, but when it was down to Hillary and Obama, he seemed to indicate he thought Hillary simply had a much better chance of winning and carrying on a type of politics Krugman thought was far better than Obama’s talk of bipartisanship.

  60. 60
    Klaus says:

    Micheline:

    My problem with Krugman is that he makes nationalization is cheap when in fact it is hugely expensive,. And besides nationalization doesn’t get rid of toxic assets. You have to find a way to create a market for them.

    No one is saying nationalisation is cheap. It would involve paying off the debts of the banks, making them solvent, and heaven knows how much that is. Could be trillions.

    But it would be cheaper than this solution, because nationalisation involves gov taking over the bank and selling it off in the end, making a little hand change doing so. The Swedish government about broke even eventually, I seem to remember. It would also be more effective at restoring trust to the financial markets, because selling the bank would involve selling toxic assets, putting them on the market sans subsidies, for a real market value, unlike this planned-economy solution of Geithner’s, which is only going to reveal how much money people want to pay for toxic assets if the US Treasury contributes 90% of the cash. The Geithner plan is simply handing money to banks hoping that is enough to make them solvent, without any payback involved – and we wouldn’t even actually know if they were solvent. Nationalisation would open up the balance sheets for the public, and when the banks are made solvent with government money, trust would return to the financial system, because everyone could see that they are solvent, by virtue of the open balance sheets.

    Krugman acts like the Swedish model is a magic bullet. Sweden’s economy didn’t immediately turn around as it has been portrayed by some in the media.

    Please don’t confuse Sweden’s economy with Sweden’s banking system. That would be like mixing up the stimulus plan and the bailout.

  61. 61
    Napoleon says:

    @passerby:

    Okay, then school me. Why aren’t banking institutions allowed to go bust?

    Seriously, why? (or why not?)

    I wish I had a good link to post to an explanation, but the basic explanation is mostly contained in Jimmy Stewart’s speech in It’s a Wonderful Life. No bank can ever cover what it owes it’s depositors if a run on the bank develops, so to defuse in the public’s mind that if a bank is in trouble you need to withdraw asap, the USA guarantees the bank. In order to effectuate on that guarantee if a bank really does get in trouble the USA takes it over.

    The system has worked great since 32, and the fact that the current crisis comes from institutions outside of the US’ regulatory umbrella tells you how well it works, and how dangerous it is not to extend it to any segment of the financial sector that if it gets in trouble it can take down the rest of the economy with it.

  62. 62
    passerby says:

    @hal:

    But the effect is that look! Even dirty, bearded hippie liberals hate Obama’s plans…

    You see what they did hal. What I noticed about the photo they chose–the bearded half face, the pilly plaid scarf–has got "dirty, bearded hippie" written all over it.

    @Chris Andersen:

    it’s mostly a fluff profile piece that really doesn’t explain why "Obama is wrong".

    Thanks for catching that. I haven’t read the piece yet.

  63. 63
    Klaus says:

    And however much Krugman is weakening Obama by criticising him, you can all be sure the Geithner plan possibly failing and the Obama administration coming back to Congress to make up for the massive losses incurred on behalf of the US tax payer will make the supposed damage by The Shrill One’s criticism seem utterly insignificant in comparison. Maybe worry about that instead of worrying about a damn magazine cover, if you are so concerned about political damage.

  64. 64
    pillsy says:

    @passerby

    There’s no doubt in my mind that Krugman realizes that he’s being used this way. I think he’s an indifferent observer of politics, but when it comes to the media he’s pretty sharp.

    It’s just that he’s using the media, too.

    Knowing his general temperament, and the tenor of liberal criticism of both the politics and media culture of the past decade, I can’t imagine he’s worried that the media are using him to undercut Obama, nor should he be.

  65. 65
    pillsy says:

    @passerby

    There’s no doubt in my mind that Krugman realizes that he’s being used this way. I think he’s an indifferent observer of politics, but when it comes to the media he’s pretty sharp.

    It’s just that he’s using the media, too.

    Knowing his general temperament, and the tenor of liberal criticism of both the politics and media culture of the past decade, I can’t imagine he’s worried that the media are using him to undercut Obama, nor should he be.

  66. 66
    passerby says:

    @Napoleon:

    The system has worked great since 32, and the fact that the current crisis comes from institutions outside of the US’ regulatory umbrella tells you how well it works, and how dangerous it is not to extend it to any segment of the financial sector that if it gets in trouble it can take down the rest of the economy with it.

    I understand that the biggest problem entity is AIG and as Geithner pointed out at one of his House hearings, the Treasury (or anyone for that matter, lacked authority to deal with (regulation wise) a non-bank entity such as AIG.

    But as far as banks are concerned, (a handful of small and large banks being seized each week for the past couple of years) is this a disagreement on terminology?

    Is it called "seizing" or "receivership" vs "bankruptcy"? where the effects are basically the same: being seized and carved up like thanksgiving turkeys on behalf of their stock holders, creditors and depositors?

    As Liddy testified to the House, AIG was subject to "bankruptcy" but claimed that it was not an option due the the collapse it would cause if they had filed.

  67. 67
    passerby says:

    er..Libby

  68. 68
    passerby says:

    @pillsy:

    I can’t imagine he’s worried that the media are using him to undercut Obama, nor should he be.

    Your right, he hasn’t acted like a wall flower in all this.

  69. 69
    El Cid says:

    Is it called "seizing" or "receivership" vs "bankruptcy"? where the effects are basically the same: being seized and carved up like thanksgiving turkeys on behalf of their stock holders, creditors and depositors?

    To a degree, yes. The manner in which actual banks go ‘bankrupt’ is that the FDIC and other agencies monitor banks’ status, and the FDIC then takes over banks which are insolvent.

    This cannot be done with non-bank financial institutions, which apparently is why Geithner and Bernanke have backed legislation submitted to Congress to provide for this sort of takeover and administration of non-bank financial institutions.

    Again, the Geithner plan appears to be aimed at helping solvent institutions make the most of their assets (toxic or not) in order to recapitalize, and will not really help institutions which prove to be insolvent.

    We don’t know how big the problem of insolvent institutions will be. It could be barely manageable; it could be horrific; it could be completely out of our control; or not. Or so I hear it discussed by pretty informed types.

  70. 70
    Napoleon says:

    @passerby:

    Is it called "seizing" or "receivership" vs "bankruptcy"? where the effects are basically the same: being seized and carved up like thanksgiving turkeys on behalf of their stock holders, creditors and depositors?

    Whatever you call it, it is the government taking ownership which by definition is nationalization, and I think a fair reading of any one like Krugman is that this is the type of nationalization they are talking about. Now, if they seize Citibank there is no way they are going to turn around and have sold off the operating assets by the end of the weekend like say "West Central B-ttF–ck National Bank", but quite frankly if the US gets its hands on either Citi or BoA they would be idiots not to restructure both into a whole bunch of medium size banks before spinning them off.

    As to AIG if we had a government over the last 30 years that extended regulation to the shadow banking system he would have had the authority. By the way, at this point they don’t really need to since I think they own 80% of the stock. All the gov. needs to grow are some balls to start acting like they own it.

  71. 71
    TheHatOnMyCat says:

    If I get Newsweek right, Krugman has been right about a couple of things, and therefore all hail Krugman, loyal opposition icon and tv star.

    Okay, got it. Since I was right about the Iraq war in 2002 (I said that it would be a quagmire, that we’d get bogged down in there, that the WMD rationale made no sense and didn’t fit the entire intelligence picture…..), when do I get my Newsweek cover?

    Krugman is on the cover of a dying magazine mainly because the establishment needs a loyal critic to trot out when things get rough … or dull … on the news front.

    All hail Krugman!

  72. 72
    TheHatOnMyCat says:

    More on the slow death of newsmagazines.

    Hopefully, cable tv news will not be far behind?

  73. 73
    passerby says:

    @El Cid:

    This cannot be done with non-bank financial institutions, which apparently is why Geithner and Bernanke have backed legislation submitted to Congress to provide for this sort of takeover and administration of non-bank financial institutions.

    But, if I understand correctly based on what Libby told the House when asked, the non-bank financial institutions have bankruptcy as an option as I heard him use the "too big to fail" excuse, during the hearing, to explain why bankruptcy was not opted for in favor of us taxpayers propping them up with endless capital.

    Given his options, I understand why he would prefer boundless taxpayer support vs bankruptcy. So all of the media have abandoned the discussion of the concept of bankruptcy (as regards AIG anyway) as a option.

    There is something very wrong with what is going on with our dollars and these banks. I don’t know who to believe when it comes to the details, but, I (have to) trust that Obama has a plan to either reverse this mess or prevent it continuing into the future. To have this failed system rebuilt without massive reform would be proof that America is over.

  74. 74
    Shawn in Showme says:

    You think the Villager obsession with AIG bonuses was bad? It will pale in comparison to the scrutiny every management decision at Citi and BoA receives if the government takes them over without trying other corporate-friendly methods first. Every week would be a new "Bank-gate" scandal story and op-ed screeds trumpeting socialist corruption.

    Geithner doesn’t have the staff to run multiple megabanks, never mind the ability to fight a media war.

  75. 75
    passerby says:

    BTW,

    WRT the constant discussion point of the idea of selling off the toxic "assets", am I the only one who thinks this is a futile idea?, a moot point because these "assets" are actually (in my view) utterly worthless. No. Value. Who would be sucker enough to buy them?

    This situation requires the most painful (and assumed to be impossible) solution: write them off.

    Fraud. I say fraud.

  76. 76
    passerby says:

    @Shawn in Showme:

    Geithner doesn’t have the staff to run multiple megabanks, never mind the ability to fight a media war.

    And this brings up one of the most curious, barely discussed, situations about this bank mess: why hasn’t Geithner/Obama appointed a deputy Treasury staff yet?

    Unvettable candidates?

    Senate roadblocks?

    Are they using a lack of staff to justify the pace of resolving this problem?

    Do they want to limit the number of people involved because of the hocus pocus factor of these dealings?

    We’ve seen how efficiently the Obama administration can accomplish stuff when it has a will to, but this curious item–the lack of treasury support staff at a time like this–is barely on the radar. The press isn’t asking about it and the administration isn’t fretting about it.

    I’m curious.

  77. 77
    Micheline says:

    @Klaus: No Krugman has said that nationalization will prevent a situation that you saw in Japan. Actually, nationalization would cost just as much.

  78. 78
    Martin says:

    WRT the constant discussion point of the idea of selling off the toxic "assets", am I the only one who thinks this is a futile idea?, a moot point because these "assets" are actually (in my view) utterly worthless. No. Value. Who would be sucker enough to buy them?

    They aren’t inherently worthless. They are either mortgages in good standing that generate income as the borrowers pay the mortgage, or they are defaults that are valued at the market price the house can obtain. The only reason they *appear* worthless is that nobody has the money to buy them or are willing to be exposed to a level of risk that they have a hard time measuring.

    And my understanding of the plan is that the taxpayers aren’t buying these at all – FDIC is. Basically FDIC becomes the bad bank, they take 90% of the risk here. The plan should make clear which of the banks are truly fucked – they have a place to sell their assets without writing them off to zero, and some will become apparently solvent as they get cash in exchange for these, and others will become apparently insolvent – this is one of the stress tests. The insolvent once can still be nationalized, but it’ll be much more clear which ones need to go there and which don’t.

    Treasury loans money to FDIC to do this but any losses FDIC takes will have to be made up by the banks, since FDIC isn’t funded by taxpayers directly. If FDIC actually makes money on this deal, then good all around.

    Now, here’s where the outrage should happen – the consumer banks (our banks) are bailing out the investment bank fuck-ups because the government was never given the power to set up this kind of structure for the investment banks. Now, if Congress gives Treasury this power, then in theory they could insist that the investment banks pay off FDIC losses, but I’m not sure this would actually happen.

  79. 79
    Shawn in Showme says:

    why hasn’t Geithner/Obama appointed a deputy Treasury staff yet?

    Obama finally nominated Neal Wolin for deputy treasury secretary last week and three other staff members yesterday. After having Tim Geithner’s tax issues thrown up in his face, I don’t blame the administration for slowing down the vetting process to prevent that from happening again.

  80. 80
    El Cid says:

    But, if I understand correctly based on what Libby told the House when asked, the non-bank financial institutions have bankruptcy as an option as I heard him use the "too big to fail" excuse, during the hearing, to explain why bankruptcy was not opted for in favor of us taxpayers propping them up with endless capital.

    Given his options, I understand why he would prefer boundless taxpayer support vs bankruptcy. So all of the media have abandoned the discussion of the concept of bankruptcy (as regards AIG anyway) as a option.

    Most observers point out that the type of bankruptcy which would be applicable in these circumstances would be liquidation; most of these institutions are in too much trouble to go through any sort of supported reorganization such as a typical company which edges into bankruptcy. There’s not much orderliness to it, not too distinct from collapse. The concern is that it would basically bring down the rest of the already-limping financial system.

  81. 81
    Scott says:

    It seems obvious as hell, now, while we watch Dr. Gramm’s undead experiments gnawing away at the federal government.

    Don’t forget Dr Gramm’s evil assistant Igor Schumer.
    The recent NYTimes article laid out his bought and paid for
    support for evisceration of existing and proposed regulatory legislation. Helped create the undead monster; as Igor pulled the switch.

  82. 82
    Klaus says:

    Micheline:

    @Klaus: No Krugman has said that nationalization will prevent a situation that you saw in Japan. Actually, nationalization would cost just as much.

    What he said was nationalisation would clean up the banks immediately, which is not what Japan did. Japan went through much the same meandering response to ailing banks that Paulson, Geithner and Summers are pushing, and was thus saddled with an underperforming financial sector throughout the nineties.

    And nationalisation would be cheaper, because, as I argued, the government would make money selling off the assets, covering some of the bank’s debt it paid off to make the bank in question solvent. The Geithner plan not only has no such payback involved, and not only does it leave people in doubt about the soundness of the banks, it also gives away a great deal of money to the outside investors who are to use government money to buy the toxic assets, since half the profit realised would be theirs. Only: They’re not the banks! And couldn’t care less about lending to small businesses and the like.

  83. 83
    Klaus says:

    And, of course, why wouldn’t the banks which received TARP funds use the money to "invest" in each other’s toxic assets through the Geithner plan, both getting rid of their toxics for free while getting half the profits, if any?

    I mean…I’m European, formally I shouldn’t care if American tax payers enjoy getting buggered to death because they find Obama sympathetic, a lot of the money reaches European banks anyway, so I should be fine with this. But, you know. It’s painful watching you flail like this, and you’re pretty important to the rest of the world, and we really do like the old USA.

  84. 84
    celticdragon says:

    Let’s grant that Iraq, spying and torture have no more to do with 9/11 than (cue the tortured cries of Mike Godwin) a burning building caused WWII*.

    I, for one, think the Reichstag fire was caused by Lovecraftian cultists engaged in worship of a shoggoth.

    Something to do with "… the mad faceless god, howls blindly in the darkness to the piping of two amorphous idiot flute-players…"

    Might make me want to burn things too, heh!

  85. 85
    bartkid says:

    That is not CDS which can eternal lie.
    And with strange aeons even AIG may die.

  86. 86
    terry chay says:

    @slightly_peeved: I think his personal watershed was when he was passed over for a cabinet appointment under Clinton. He probably formed a personal thesis that telling the truth was not what makes good politics and that that compromise was not what he was willing to make. Hence “temperamentally unsuited.”

    After that, he started blogging for slate and then was picked up in 2000 as a New York Times columnist. Clearly he figured he’s spilled enough ink that when it comes to Ben Franklin’s maxim: “ Either write things worth reading or do things worth the writing” that Krugman feels he falls in the former camp when it comes to political application of economics.

    In the meantime I think he hopes his columns give his friend Summers ammunition for a more interventionist approach to the situation. One which I think most of the public would approve of at this point.

    Also, given the hit piece that Rahm Emmanuel put in the New Yorker, do you honestly think that the Obama administration has a position on the inside open to him?

    Seems to me that “If he’s so good, he should be on the inside?” is just like “If he’s so good, why doesn’t he present a plan?” You can’t fiat Krugman being any different than he is. He’s been branded “the L word” politically not withstanding the fact that he was totally prescient.

  87. 87
    terry chay says:

    @Micheline: I don’t think Krugman feels that nationalization would be cheap. His problem is that nationalism isn’t part of the debate at all. This is clearly wrong because the Geithner plan will only work if you feel that this is a temporary blip and the expense of that plan (already well over $2 trillion if you include the Federal Reserve’s application of novel financial instruments) is certainly not “cheap” either. It serious expends a lot of capital that might be needed if nationalization is inevitable.

    The point is, you’re closing off the debate by tarring it as Krugman’s or Atrios’s and saying that Geithner leaves their options open later, when there is no evidence that there will be either political or economic capital a year down the road when/if we reach that Rubicon.

    Read Krugman’s articles again. His main fear is: What if, in a year, the popular tide turns against Obama at a time when we still haven’t fixed the financial problems?

  88. 88
    terry chay says:

    @Shawn in Showme: You are confusing a budget with the bailout.

    In the end, there are as many numbers in Krugman’s plan as there are in Geithner’s. Another big problem with Geithner’s is many of the numbers you aren’t allowed to see (they’re in the Fed).

    The reason that is going on is political. To do things the way Krugman et. al. want would necessitate an large open and transparent debate about how much money we’re spending to bail out this institution since it would have to be done by the legislature. To do things the Geithner/Paulson strategy involves the bulk of the money being done through the Federal Reserve without the need for a political battle. On the other hand, what happens when you run out of your bag of tricks? That happened last year and we rewrote the rules so that they have a new bag. What happens when that runs out?

    At the end of the day, someone is going to pay. It’s going to be ugly.

    Personally, I’d rather have the debate now while we still have a few cents to our name.

Trackbacks & Pingbacks

  1. […] Tim F points to a rather prescient January 2002 Krugman column: One of the great cliches of the last few months was that Sept. 11 changed everything. I never believed that. An event changes everything only if it changes the way you see yourself. And the terrorist attack couldn’t do that, because we were victims rather than perpetrators. Sept. 11 told us a lot about Wahhabism, but not much about Americanism. […]

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