Sachs on How the Obama/Geithner Scam makes the Rich Guys Richer

[Karmadillo]

http://www.huffingtonpost.com/jeffrey-sachs/making-rich-guys-richer_b_180455.html

Making Rich Guys Richer
Posted March 29, 2009 | 11:05 AM (EST)

<edit>

Geithner and Summers are proposing to use government loans to finance investors to buy toxic assets. This is fine. The question is the terms. If the loans were going to large and well-capitalized investment funds, whose overall capital base would back the repayment of the government loans, the plan would have merit of providing liquidity to the market for toxic assets. Instead, the government loans by design will go to poorly capitalized special investment funds set up specially to buy toxic assets. The approach is tailor-made to leave the FDIC and Fed with massive losses. Since the taxpayer losses will be hidden on the balance sheets of the FDIC and Fed, the tens or hundreds of billions of dollars of taxpayer losses will not be recognized until the program is long forgotten by the public.

The cheaper and more equitable way would be to make shareholders and bank bondholders take the hit rather than the taxpayer. The Fed and other bank regulators would insist that bad loans be written down on the books. Bondholders would take haircuts, but these losses are already priced into deeply discounted bond prices. The government could provide new loans to blue-chip investors to buy up the toxic assets at a deep discount, but the government's loans would have to be repaid by the investors whether or not the toxic assets pay off. In the current plan, the investors are allowed to default on the government loans if the toxic assets perform badly.

Investors would of course bid less for these assets than under the Geithner-Summers plan, so that the banks and bondholders would get less, but the taxpayer would also be left much less exposed. If the write-downs of the bad assets force the bank into insolvency, the FDIC would pump in public capital to keep the bank operating without interruption. Even in that case, however, the solution would be cheaper than under the current plan, since the taxpayers rather than the existing shareholders would be the claimants on the bank's assets.

We all know the end of the story as it's now being written with an overpriced rescue of the banks. When it comes time for health care reform, education funding, infrastructure rebuilding, and (heaven forbid) help for the world's poor and dying people, there will be no fiscal space. Budgets will be tight. Spending that helps make rich guys richer while leaving the poor to die of hunger and disease seems to be par for the course in our Wall-Street-besotted public policy.

more...

[Captain Hilts]

1. Making rich guys richer is what Sachs did in Russia, actually. nt

[cliffordu]

25. Do we have ay links or proof or is this just bloviaton???

[Captain Hilts]

28. Wow - a Limbaugh word. Living in Moscow and writing a phd on economic reform.

Maybe you pull facts out of your ass, but I don't.

[geek tragedy]

2. You hope Obama fails.

A $10 donation to DU says you don't have the courage to say it.

[Dhalgren]

4. I hope he fails to make the rich guys richer.

If that's what you mean...

[geek tragedy]

5. You think that his main goal? n/t

[Dhalgren]

15. I am no longer sure what his "main goal" is.

I guess we'll have to wait and see, but his advisors and what they seem to be doing are not encouraging.

[PM Martin]

23. If you and the "bankers" are so sure of this plan

then why don't the bankers go in 50/50.
The government(tax payer) gives 50% and the bankers give 50%.
Perhaps this is just window dressing to cover up a massive give-a-way to the banks.

[western mass]

40. Yes I do.

Why? Because actions speak louder that words, and his actions have been to consistently protect the interests of rich people.

[Karmadillo]

13. You're kind of lacking in ESP abilities.

nt

[geek tragedy]

17. Looks like my $10 is safe. n/t

[Karmadillo]

19. That's good. Thanks for letting us know.

nt

[geek tragedy]

27. The primary ended some time ago.

You must have missed that part.

But, you'll have to forgive my chuckling at vehement Clinton partisan decrying pro-corporate poliices.

[Karmadillo]

29. I'm certainly against the Obama/Geithner scam. Perhaps

you could drop your focus on me (not permanently, of course, since I seem so important to you) and explain why we should accept this plan to help the rich get richer. You could even, since the thread is technically about Sachs' response to the scam, explain why he is wrong.

[geek tragedy]

36. The question is what's best for the economy.

But, you're not interested in discussing policy, only in hating on Obama. And, quite honestly, all you do is cut and paste people much smarter than yourself.

In fact, you hate him so much that after he won the nomination, you left the Democratic party.

[Karmadillo]

43. What's best for the economy? Tell me. I'm sure you're much smarter than me

and you could easily point out why Sachs' arguments are misguided. I eagerly await your insight.

[bvar22]

31. Why not buy yourself a star?

Its more than a little hypocritical unless you do.

[geek tragedy]

37. Do you want Obama to fail? n/t

[bvar22]

41. So.....

Where is your star?
Still talking BIG, but showing small.

[girl gone mad]

20. Did you even read the article?

Sachs is saying the same thing Krugman, Galbraith, Stiglitz, and dozens of other economists and financial geniuses are saying. Geithner's plan sucks.

[MarjorieG]

3. Populist, fair argument easy to make. How else to relieve, price unknown assets if no profit motive?

Do we have another couple of trillions to take over the banks? In lieu of other spending and public saying no?

[OHdem10]

6. A Panel from WSJ discussed this very point on Fox News.

They did not seem to have a problem with it.(WSJ).
called it a "back door way to help the banks".
Could this be why Wall Street did a 180 on Geitner
and propelled him into positive news.

Let us face it. The Economic System is set-up to
favor Business and Wall Street. To make real change
Sach's is only saying. The entire system has to change

[cliffordu]

7. How many of these turds ya got floating here this morning?

did Obama kill your puppy or something??/

:hurts:

[Karmadillo]

14. Turds? Is there something factually inaccurate in this article?

Please specify.

[high density]

8. Another reguritation of Krugman talking points.

The shareholders/bondholders (banks) will take some sort of haircut. These assets are not going to be sold dollar for dollar. However, any plan that involves helping the banks is obviously going to help shareholders as well. Duh. The idea is not to have a couple of decades where our economy treads water like Japan. It is clear the Obama admin is going to ignore "moral hazard" for a while until the banking system is back on track. Then it is time for regulation to prevent this from happening again.

The assets are not anywhere near 100% bad yet the doom and gloom postings assume the Federal Government is going to take massive losses on these investments. Most people are still paying their mortgages. The fact is that Bill Gross and these other rich fucks in the bond market are going to be taking on their own risks as well, so I cannot see them participating in the plan if it's as junky as all of these people are asserting. Yes, the government takes much of the risk but that's what it takes to create this market. We also take a share of the profits when it succeeds. The FDIC also takes a lot of risk off the private sector, but I don't see people going with pitchforks after them. In fact these commentators don't have a clue about what these things are worth until the FDIC unravels them for these auctions, so right now it's a bunch of doom and gloom speculation.

[OHdem10]

11. It has been reported clearly. The HedgeFunds (prospective buyers)

will either make a killing or suffer a loss. In order to entice
the Hedgefunders they get a sweethear deal. This is the way
it works. Yes, Taxpayers will gain but nothing in proportion.

What most people are screaming about. This is an improvement
on Bush Paulson Policy but not change. Wall Street still drives
the bus.

[girl gone mad]

32. Hedge funds aren't risking anything.

Your math is wrong.

[girl gone mad]

21. Reality is now a "Krugman talking point"

The discussion on DU has gotten downright stupid.

[high density]

26. Reality?

The reality is this is going to happen even if Newsweek puts Krugman on the cover.

[SlingBlade]

9. Com'On Karmadillo, Quit Bogarting

That Impeachment Petition !

[Adelante]

12. Yeah, let's get it over with

:D

[HughMoran]

33. Call an ambulance or a herst

:rofl:

Love your ID - uh-huh :D

[SlingBlade]

42. um-hum, And I like dem French Fried Taters Too

[marmar]

10. Constructive criticism is good, and the Obama team's economic policies need to be questioned, but...

..... it seems rather personal with you. Is it residual bitterness from the primaries?

Didn't you just post this article?

[geek tragedy]

18. Funny how this outburst follows CapHill forum going under.

PUMAs need to play somewhere I guess.

[girl gone mad]

22. Can you defend the Geithner plan on its merits..

rather than attacking a person who merely posted the article?

[Karmadillo]

30. Your post suggests you don't really like the Obama/Geithner scam being questioned.

Perhaps you could explain why people like Sachs and Hudson and Krugman are wrong to dissent. Are there merits to the scam? Enlighten those of us who can't understand why a Democratic administration is so intent on transferring wealth from the taxpayer to the wealthy.

[HughMoran]

34. It's always about someone trying to shut you up

oh, well - sucks to be you

[Karmadillo]

35. Your post suggests you don't really like the Obama/Geithner scam being questioned.

Perhaps you could explain why people like Sachs and Hudson and Krugman are wrong to dissent. Are there merits to the scam? Enlighten those of us who can't understand why a Democratic administration is so intent on transferring wealth from the taxpayer to the wealthy.

[Metta]

16. Obama will waste lots of time and treasure propping up the status quo as you rightly say.

... don't need much of a crystal ball to see that happening.

[SlingBlade]

24. Yea, But when you take the "C" out

of "Constructive Criticism", All you have left is BULLSHIT

Do you C ?

[pnutbutr]

38. last ditch effort

By throwing out so much money and making the FDIC risk massive loss we are open to severe failure in the economy with no more options to get out. If those investments fail or devalue, the FDIC is screwed, our government is broke and we will be shit out of luck with absolutely no more options to get us out. It's an all or nothing plan with devastating consequences if it fails.

[xchrom]

39. +21