The Geithner Plan

At the end of his piece at Firedoglake on Timothy Geithner’s toxic asset plan, James K. Galbraith writes, “I hope what I’m driving at, here, is clear. …”

Well, no, it’s not. But that’s not Galbraith’s fault. It’s mine. I am so economics-challenged that no one can explain it to me in a way I can understand — at least, that’s my conclusion so far. I don’t understand the underlying economic concepts; I don’t understand the terms that are being used; I simply cannot grasp this subject on any level.

Here are some folks who can — at any rate, better than me.

The aforementioned James K. Galbraith. Not surprising, given his parentage.

Paul Krugman (natch). He doesn’t like the plan — in fact, he’s in despair over it. See also Krugman 2 and Krugman 3. But read Brad DeLong’s FAQ before you read Krugman 3, since the latter is a response to the former.

Hilzoy gives us a “reasonably informed non-economist’s” analysis of the plan in two parts.

The New York Times has a well-written overview that is relatively easy to understand.

Turns out there is someone else in blogtopia who does not understand what the hell is going on, and he has a hell of a roundup. Take it away, E.D. Kain.

9 Responses to “The Geithner Plan”

  1. tas says:

    Here’s what I want to know about the plan: When the government essentially gives bankers (the exact same people who got us into this mess) a trillion to buy “toxic assets,” will those assets still be billed? For example, say somebody hasn’t made mortgagee payments, thus they become one of the toxic assets. When the government gives a banker 97% of the funds needed to purchase this asset, is that mortgage paid off? If so, does that mean mortgage payments are no longer necessary? Will a mortgage payer like this keep their house, still have to pay, or be kicked out?

    And as mindboggling a number as a trillion is, it isn’t enough. The high end estimate on the bad mortgages Fannie and Freddie made is $5.4 trillion. So, uhm, what happens after this TARP/FDIC/private ownership hybrid is put into place? Will the government print more money for more of this?

    And when the government prints out too much money, will they address the inflation it causes? That’s going to hit the poor and middle class far before it hits the rich.

    What else… Oh, who are we selling toxic assets to? We’re giving money to banks who made the bad mortgages in the first place — don’t they technically already own them?

    As far as questions go, I’m disappointed that the government hasn’t answered much of anything yet.

  2. Check out the block caps in my post. My point was truly simple. They should EAXAMINE THE LOAN TAPES. The loan tapes underlying subprime securities will show missing documentation, misrepresentation and signs of fraud.

    These are not assets that are safe to market under any conditions.


  3. Kathy says:

    But I don’t know what loan tapes are. I was dissing my own understanding of economics not your ability to explain, as I stated quite clearly. But now I’m annoyed, because the tone of your comment is extremely condescending. Your point may have been “truly simple” in *your* mind, but it wasn’t “truly simple” for me.

    There, now I’ve gone and talked back to John Kenneth Galbraith’s son. And I’m not sorry. Because it seems even famous economists can act like jerks.

    But I *do* thank you for reading my post.

  4. tas says:

    Mr. Galbraith — I sympathize with Kathy. I enjoy reading about economics and physics — these two topics are related in the fact that both are sciences, but I am not a scientist. Instead of figuring out much of this stuff on my own, I observe those who have figured it out and learn from there.

    To the detriment of other things, like my classes, I’ve spent far too much time observing this financial meltdown. I think I have an idea of what you mean when you say “examine the loan tapes,” but since you’re here I’ll ask you directly. I think you’re implying that the loan tapes will show just how worthless these mortgages are because, as detailed in this 60 Minutes report from last December, the wave of mortgages and banks made to people with no job and no income is due to hit (and it could be bigger than the sub-prime wave).

    Essentially, how I read your statement was that checking the loan tapes would kinda show how much the banks screwed up, translating into how screwed we are. Am I on the right path?

  5. Kathy says:

    Okay, now hell has frozen over, AND pigs can fly, AND the Pope is not Catholic: tas wrote politer than I did.

    Did someone put something in the water?

  6. tas says:

    Yeah, the good cop/bad cop routine in comments has been reversed. Heh. I’m generally nicer in comments to people whom I don’t think are nuts.

  7. E.D. Kain says:

    Cheers, Kathy! Yes, I’m as bloody muddled as the next….the more I discover about this whole thing, the less I like it. And the less it makes any damn sense at all….

  8. Kathy says:

    I’m generally nicer in comments to people whom I don’t think are nuts.

    Isn’t that interesting. I’m the opposite. I have more patience with people I think are nuts, and less with people I think should know better.

  9. tas says:

    I start out with the assumption that everybody shouldn’t be nuts, and if you are, then I get very angry, turn green, and become liable to do nasty things. Heh.

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