Skip to main content

Dr Doom Likes Geithner Plan

  • Author:
  • Updated:

By Ben Cohen

Nouriel Roubini isn't quite as skeptical on Geithner's plan as other leftist economists. He writes:

The Geithner plan is not an alternative to nationalization: insolvent

banks should be nationalized and the Geithner plan should not apply to

them. But solvent banks still need to have their toxic assets disposed

of; and for this banks the Geithner plan provides a solution that - all

in all - is better than the alternative. Those who dont like the

Geithner plan on the basis that they prefer nationalization are right -

as i agree - that the insolvent banks should be nationalized. But they

usually dont give an explanation of how they would dispose of the toxic

assets of solvent banks. They seem not to like the Geithner plan

because it would provide a subsidy to the investors. But ensuring

participation of private investors in the risk and in the price

revelation is worth that subsidy. Otherwise those who criticize the

Geithner plan as a solution to the toxic assets of solvent banks should

come up with an alternative that works and that is less costly to the

government than the Geithner plan.

While I'm inclined to agree with Krugman's view of the plan, Roubini has a point - Geithner's plan does allow for nationalization down the road (and it will surely come), a key point in sustainable recovery. The problem is, the deal is another giant government subsidy to Wall St where it puts in more than it gets out and gives away a huge amount for little in return. The result is essentially a new system where Government guarantees Wall St never fails, as it socializes the risk, and privatizes the profit. Like socialism, but in reverse.