Saturday, September 27, 2008

centrism that passeth all understanding 

Krugs describes the bailout politics as "tricky" and says:

Nouriel Roubini has a characteristically scathing takedown of the Paulson plan, and here’s the thing: language aside, his economic analysis is similar to mine. The fundamental problem in the financial system is too little capital; bizarrely, the Treasury chose not to address that problem directly, by (say) purchasing preferred shares in financial institutions. Instead, the plan is premised on the belief that toxic mortgage-related waste is underpriced, and that the Treasury can recapitalize banks on the cheap by fixing the markets’ error.

The Dodd-Frank changes make the plan less awful, mainly by creating an equity stake. Essentially, this makes it possible for the plan to do the right thing through the back door: use toxic-waste purchases to acquire equity, and hence inject capital after all. Also, the oversight means that Treasury can be prevented from making the plan a pure gift to financial evildoers. But it’s still not a good plan.

On the other hand, there’s no prospect of enacting an actually good plan any time soon. Bush is still sitting in the White House; and anyway, selling voters on large-scale stock purchases would be tough, especially given the cynical attacks sure to come from the right. And the financial crisis is all too real.

So is it better to have no plan than a deeply flawed plan? If it was the original Paulson plan, no plan is better. Dodd-Frank-Paulson may just cross the line — let’s see what details we have if and when agreement is reached.

If the plan looks not-awful enough, I’ll be pro. But I won’t be cheering — I’ll be holding my nose.

Brad DeLong essentially agrees on the relative merits of the Dem plan, but not the politics:

If the House Republicans won't vote for the Paulson-Dodd-Frank plan, then the Democrats should not either. They should write the best bill possible--which I think is the Swedish model--pass it, and send it to Bush to sign.

Although I can't quite tell if by this he means that the Dems should write the best bill possible after the House Reps refuse the PDF Plan, or that he thinks the PDF Plan is the best possible. I doubt the latter.

Note to Krugman: You're not a party officer and not up for re-election. You could actually use your column to educate the public by discussing what the best bill possible would be and why it's not being enacted. Or you could accept the choice horizon dictated by apparatchiks and give tepid endorsements. What possible reason is there to choose the latter course? Where's all that Sturm and Drang you used to direct at Bush so well?

We don't need your judgments about what's possible shaping the horizon of the possible. We need expertise in economic analysis, not expectation management.


This page is powered by Blogger. Isn't yours?