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.
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.