MARCH 18, 2009
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In June 2007, Tim Geithner, then the president of the New York Fed, gave a speech about the financial crisis he'd helped defuse as a Clinton Treasury official in the late 1990s. This particular crisis had originated in Asia rather than the United States, and it was triggered by international capital flows rather than a real-estate bust. But, in several important respects, it resembled the crisis we face today, which is why Geithner's thoughts on resolving it are so interesting.
Geithner referred to the approach he and his Treasury colleagues (among them Larry Summers, now the top White House economic adviser) adopted as a "Powell Doctrine applied to international finance--the overwhelming use of force, with a clear strategy for resolution." He elaborated: "Very substantial resources were deployed in support of the recovery efforts, and a large share of the resources was made available upfront, in order to try ... to stem the loss of confidence."
When Geithner's first major speech as Treasury secretary addressed our current financial crisis, many who'd followed his career wondered what had happened to the Powell-like principles. Sure, some of the rhetoric was similar--as when Geithner warned that "[t]here is more risk and greater cost in gradualism than in aggressive action." But, with Geithner's hazy details and pointed refusal to ask Congress for more money, little about the plan seemed "overwhelming."
Perhaps the boldest of the available options is temporary government ownership, loosely known as nationalization. Economists from Paul Krugman and Joe Stiglitz to Alan Greenspan have converged on this course, and the markets--or at least bank shareholders--are beginning to anticipate it. But Geithner has been even less keen on nationalization than the alternatives, telling Jim Lehrer it's "the wrong strategy for the country." Has the Treasury secretary suddenly lost his nerve?
Whether or not the banks are ultimately nationalized, they will clearly need more money. At the heart of the financial crisis is the gap between their liabilities and assets--the red ink overwhelms the black. Banks in this situation are loath to make new loans, without which businesses can't grow.
The main mechanism for providing money under the Geithner plan is a so-called "stress test," which will measure banks' tolerance for additional economic pain with the promise of cash for those too weak to withstand it. Thanks to the bank bailout Congress approved last fall, the administration still has between $200 billion and $300 billion available for this. But almost no one believes it will be enough to fill the existing hole. By failing to ask Congress for more money, the administration seemed to embrace precisely the gradualism Geithner cautioned against.
The administration clearly realizes this. As Obama noted in his speech to Congress this week, the bank plan "will require significant resources from the federal government--and, yes, probably more than we've already set aside." All things being equal, Geithner and Obama would almost certainly have asked for this money already. (The budget document that Obama released two days later has a $250-billion "placeholder" for additional bank money but repeatedly states that the administration isn't actually requesting the funds.) But, alas, this is where the parallel with the Asian financial crisis breaks down. Because while the ammunition deployed in that case came largely from the International Monetary Fund, which doesn't have to stand up at town-hall meetings in Schenectady to defend its disbursements, the Congress of the United States can only go so far before incurring the wrath of its Fox News-watching overlords.
And, in this case, the overlords have had enough. "[Members of Congress] are going back to their districts, home to their states, and they're getting an earful," explains one senior Democratic aide in the Senate. "A lot of guys came back from recess last week, and the right wing had done a good job stirring opposition." Asked about the prospect of more money for the banks, the aide said it would be highly unlikely, given the cumulative reaction to the first bank bailout, the stimulus, the auto-industry rescue, and Obama's recent housing plan. "'Bailout fatigue' is a term coined for this situation," the aide says. "I think that accurately reflects the view of the chairman of the banking committee, the chairman of House banking, of many within the caucus."
Which is why Geithner's goal with the bank plan may not have been to solve the crisis so much as demonstrate he could eventually be trusted with more money. Talk to administration officials these days, and you typically hear phrases like "show results" and "rebuild credibility"--language befitting a political crisis rather than an economic one. As Orin Kramer, a hedge fund manager and prominent Obama supporter, recently told me, "Until you establish credibility--that you are going to run a program with transparency and accountability, which isn't a gift shop--you cannot get additional financial authority from Congress." Obama's speech, with its tough talk about forcing banks to "demonstrate how taxpayer dollars result in more lending" and warning CEOs not to use "taxpayer money to pad their paychecks or buy fancy drapes," was aimed directly at this problem.
And here's where things get truly alarming: If Obama officials are able to "show results"--which most observers take to mean increased lending--then they probably won't need the money they'll be able to tap. But, if they're unable to show results, it will most likely have been for lack of money, which they'll have a hard time getting more of. It's a classic CATCH-22: The very reason you'd ask for help disqualifies you from receiving it.
Money aside, the question of nationalization poses serious complications of its own. Even defining the concept is maddeningly difficult. At the broadest level, it implies the government would own the banks and nurse them to health before presumably selling them off. What no one knows--and few people specify--is what ownership would mean as a practical matter. Would the government involve itself in day-to-day management? Would it wipe out current shareholders and own the banks entirely, or would it be satisfied with a majority stake? Would nationalization be more like temporary seizure--that is, honestly accounting for bad assets and injecting new capital, then privatizing as quickly as possible?
Whatever the details, Geithner and his colleagues are said to be deeply uncomfortable with the idea in principle. "Most people who run businesses in this area ... would look to nationalization as a last step--if it was the only thing standing between us and the abyss," says Michael Granoff, a private-equity fund manager who is friendly with several senior administration officials. "The people in charge of the economic policy side of things have pretty good communication with the people ... who sit where I sit," he says. "There is a shared understanding in these conversations."
Among the concerns is that government ownership invariably politicizes management decisions, which could be a fiasco (though the problems are presumably mitigated under a short-term arrangement). As TalkingPointsMemo recently reported, a coalition of unions is already lobbying against bailout money for The Principal Financial Group because of its campaign against labor-friendly card-check legislation. (Whatever the merits of card check, the debate is probably best separated from the banking crisis.) Many also worry that government ownership will frighten away large institutional clients who don't want the hassle, to say nothing of top managerial talent. A recent Wall Street Journal piece depicted Citigroup executives so harried by their government overseers that they worried about splurging for fresh-baked cookies at a corporate retreat.
On top of which, congressional Democrats are generally terrified by the prospect of becoming bank "nationalizers"--the GOP talking points practically write themselves. "It's the other N-word we're not allowed to say," complains another senior Democratic source. While it's true that Republican senators like Lindsey Graham have, in recent weeks, insisted the idea should be on the table, Democrats smell a rat. They believe Graham and his colleagues are out to spook the markets, forcing the Democrats' hand with self-fulfilling doomsaying. "These people say 'free markets,' 'leave everything alone,' 'let them fail,'" says the source. "Now, all of a sudden, they're saying, 'Nationalize the banks'? The cynicism is just incredible." Whether or not this scenario is plausible--and Graham certainly sounded sincere--it reflects very real anxieties on the Democratic side. (Graham's office did not return a call seeking comment.)
These concerns are all legitimate. And, yet, one can't help feeling we're headed inexorably toward nationalization anyway. Every new nationalization rumor sends stock prices tumbling (Citigroup recently hit an 18-year low and Bank of America a record low), forcing administration and Fed officials to coo reassurances. But, the lower the stock prices fall, the less likely private investors are to pony up more money--"If the stock is selling at ten dollars, private capital may or may not be willing to participate at $8.50," Kramer says; "if it's selling at four dollars, there's zero chance you'll participate at five dollars"--leaving government as the only option.
In many respects, the lurch toward nationalization has already begun. Treasury is asking for "convertible preferred" shares in return for the bailout money it gives banks. The preferred shares initially act like debt (which does not imply ownership). But they will be "converted" to common stock if a bank's balance sheet gets too out of whack. The process is now underway at Citigroup, for example, and is on track to leave the government with a massive 40 percent stake in the company. It's hard to see why Geithner's dictum wouldn't apply here, too: If you're going to nationalize, better to go big and bold at the outset, when the chances of success are highest, than to back into it unwillingly. But, alas, the politics appear to make this impossible.
The irony is that these two political constraints--no new money, no nationalization--could cancel out in theory. The public believes the same bankers who created the mess are now gorging at the federal trough. If nationalization were part of the equation, prompting managers and shareholders to scream about the expropriation of assets, the public might finally see its bloodlust satisfied and be willing to part with more cash. All the more so if Treasury argued that it represented a decisive final step, as opposed to the latest in a continuing drip of subsidies.
Then again, there's a fine line between pleasing everybody and pleasing nobody. Oh, to be a young Treasury official managing an Asian financial crisis.
Noam Scheiber is a senior editor at The New Republic.
41 comments
You just don't get it do you? Capital is on strike. At the end of the day, no matter how big, government just isn't big enough. But so long as the current administration says that government is the answer to everything and proposes mind numbingly dumb proposals like raising taxes and having a doctored budgetary proposal where the assumptions are so obviously wrong, money will remain on the side. I am in business and employ a lot of people. I am not expanding at all and have been deleveraging in some areas for several years and am done now. I know this will hit a bottom but it will be some time. I know the current measures will fail and so does the public. Look at the 5% savings rate this morning. I know that the social security taxes will go up in due course by expanding the ceiling. I won't employ anyone with that additional cost coming down the road until I see that the increased costs of employment are justified. Multiply what I see by all the other decision makers thinking the same thing. I will wait for the bottom and then buy assets at a major discount from here. Unemployment will be at 13% at least. And guess what?? The smart rich will get richer, the fixed income and workers will get poorer and we will have stagflation which means that soon it will be time to borrow big because inflation will eliminate the debt. The gap between the haves and have nots will get bigger not smaller. You wanted change. You got it baby.
- Martino
March 2, 2009 at 9:41am
Tim Geithner - Not Ready For Prime-Time! Glad my capital is on the sidelines...
- Scott
March 2, 2009 at 10:15am
The above poster is exactly right. It's the incalculable arrogance of Barack Obama that will spiral this problem to out of control proportions. Government is not the answer, and it will proved loudly and with catastrophic effect. As long as Obama spouts anti-business rhetoric and higher taxes, we are doomed. He thinks that govts create jobs. What a joke he's turned out to be. I for one will do everything I can to avoid taxes, and like the rest of America, I won't be spending a dime on anything but food and shelter. Thanks Barack, you f'in moron.....
- sub
March 2, 2009 at 10:34am
The thing holding this clown back is this clowns ability ,and philosophy, He has none of the above ,he is literally lost in space.
- pomoc
March 2, 2009 at 11:39am
The preceding posters are missing the monetary facts of life. Where is most of that money sitting on the sidelines parked? Government debt. Yet the government is the problem. Frankly most business people are adolescents rebelling against the parents, after they get their allowance. Money is a public utility. Where would the economy be, if we had to trust the banks to each issue their own currency? It is the fact that we are 90 years past serious currency crises in this country that people can be so shortsighted. The problem with supply side economics is that saving is limited by demand for capital, i.e. borrowing. Beyond that and it just inflates asset values and forms surplus circulation bubbles. When the borrowers are tapped out, capital is just seeding barren ground. So the only borrower now is the government and when they are tapped out, than the money isn't worth the paper it's printed on. Hint to those who think they are so smart, in the game of Monopoly, when one person owns everything, the game is over. The demand side of the economy is going to come back to bite you.
- John Merryman
March 2, 2009 at 11:54am
Martino, the smart rich will always get richer, that's not the issue. The gap between rich and poor has gotten staggering in the past 30 years. If you think the gap is growing as a result of the economic crisis, you're wrong. It's the wealthy who have seen their fortune halved at the stock market, not the have-nots. And taxes will go up at the high end in short order. Before worrying about hyperinflation five years out in the future, I'd worry about deflation now. As long as money remains on the side, it can sit either in money market accounts or treasuries. That keeps the interest rates down, keeps the dollar strong, and causes deflation. Don't assume that the deflationary cycle can be easily broken. There are no good monetary tools to break it. You're right to take your money out of the market, and to deleverage. The last ones stuck to the old investing ways will be left holding the bag. You're doing the right thing, but for the wrong reason. If you think you can time the bottom of the market, all I can say is: don't put your money back in too early. Everybody asks where is the last bubble, gold, treasuries? Of all the things I've tried to get across, I'll tell you this: the last bubble is psychological.
- iubica
March 2, 2009 at 12:00pm
You just have to love these conservative posters. They help destroy the economy with their "it's-all-about-me" behavior and then when someone finally comes in to try to fix the mess that Republicans created over the past eight years, they have no suggested solutions, only criticism and whining. And the shameful gamesmanship being run by Republicans in Congress is no better. Talk about un-American. Why don’t you guys become part of the solution for a change?
- jamie28
March 2, 2009 at 12:30pm
The previous posters have no idea what they are talking about. Businesses will start hiring again when it makes sense for them to do so. Raising taxes on those who make > $250,000 per year will have almost no effect at all on when this happens. What will have a major effect is whether the government can inject enough money into the economy to stop the deflationary spiral that has already begun - because people like Martino (quite reasonably in the current environment) have begun cutting back. We need to get rid of the childish notion that there is some sort of magical bottom we have to wait to reach and nothing can be done to stop it. The truth is, no one can ever predict where the "bottom" is because there is no fixed bottom - only a stopping of the downward inertia influenced by many fluid events. Many thought that 8,000 was the "bottom" for the DOW, but down we go. Until something stops it, not until it hits some magical "bottom." The politics of nationalization are impossible only if you are an idiot, which, alas, it appears the Democrats chronically are. The public doesn't care what you do - they may say in polls with loaded questions that they are against a government takeover of the banks, but that is beside the point. The public cares about whether you solve the problems, and nationalization is the most efficient way to do so. Is this really so hard? This is not some crazy government takeover of a bank: this is bankruptcy. The banks are bankrupt. When a bank is bankrupt, it doesn't just fold up (they used to until we figured out how destructive that is), the government steps in, strips the dead parts, and puts it back on the market, for the benefit of taxpayers and the bank's customers (who would be screwed otherwise). What we have here is a bunch of bankrupt banks being propped up to the benefit of their shareholders and the detriment of the taxpayers and the overall economy. These banks are zombies. They will do nothing productive until the dead limbs are cut off by the government. What is really holding back nationalization is the banks themselves. They don't want it, so it is off the table as far as they are concerned. Even now, in their hour of shame, they hold all the power behind closed doors. The idea that Democrats are scared of their constituents, who have been riled up by the conservatives, is ridiculous. That is just a convenient cover (what were they scared of before these constituents were recently "riled up?").
- Ryan
March 2, 2009 at 12:44pm
Nationalization might very well work, and might very well be necessary. But you need an honest, intelligent, very careful government to undertake such an intervention. It took BHO only a matter of days to reveal he saw this crisis as an opportunity to transfer wealth to his favorite constituents. Triple outlays of the Dept of Education (while banning use federal funds for student vouchers and merit based bay)? Huge construction for federal buildings (money only to be spent with union contractors)? What do these have to do with "stimulus". All BHO had to do was trick a few 100,000 marginal voters into believing he was a different kind of politician. All they had to do was believe it for one day, roll out of bed, and give him a slim majority (
- Dirck Noorman
March 2, 2009 at 12:45pm
Agreeing with many above - government is not a producer in the economy. It works to moderate and enable and can help, but the key is getting private industry producers going again. I can NOT figure out how over $1 Trillion is not "enough" and makes Geithner a wimp in this author's eyes.
- reb
March 2, 2009 at 12:49pm
Are we still pretending that they might not nationalize the banks? You do know they have always intended to nationalize the banks, don't you?
- WM
March 2, 2009 at 1:24pm
Here here for Martino. Similarly, I own a small business with a small number of employees. As long as I, like Martino, see increased payroll taxes coming down the road, I will make due without increasing my labor force. I already preemptively laid off some employees--and surprisingly, that served as an implicit warning to the remaining employees, increasing their efficiency. I don't understand why the brillian Obama and Geithner don't recognize the direct link between lowering taxes and increasing employment. So long as Obama is making clear he wants to punish those who hire employees, he will deal with ever increasing unemployment.
- k
March 2, 2009 at 1:31pm
Perhaps it is not so much Tim Geithner's decision not to nationalize the banks, as it is President Obama's decision. Do we know that Mr. Geithner is not being restrained? During his interview with Jim Lehrer, I thought the views Tim Geithner put forth were undiscernible from those of the administration. You might note that from the time he was president-elect up until the present time, Mr. Obama has never included the Nobel economists you mention, Paul Krugman and Joseph Stilitz, as part of his circle of economic consultants or advisors. A practical man, Mr. Obama appears especially cognizant of the political implications of these matters. What is stopping Tim Geithner may be Barack Obama. Petition the White House, Mr. Scheiber, for bolder moves.
- Jane B.
March 2, 2009 at 1:55pm
Obama is wasting money on 1. Irresponsible Failed banks, 2. Irresponsible Failed homebuyers, 3. restoring lifetime welfare to Irresponsible Welfare Queens, 4. Paying off Irresponsible Bankrupt Democrat states and cities. He is going to pay for it by raising my taxes... no, our children's... no, our grandchildren's taxes because they are responsible and hard working. That is not "Hope" that is corruption. No wonder Geitner, Solis, Daschle, et al refuse to pay taxes. They are not stupid, I am because I pay mine. Responsible people and businesses are afraid that Obama is going to plunge us into a Great Depression or a Weimar Republic Inflation. No one is going to invest or even spend until they are confident.
- JoeS
March 2, 2009 at 2:09pm
Why would an administration that want's to confiscate private pensions (George Miller D. Ca.) and roll them into SS want to help this depressed market?
- billb
March 2, 2009 at 2:29pm
One possibility that's not been considered is that there simply are not the staffing resources available (yet) to nationalize any of the big banks. How many hundreds or perhaps even thousands of people would be required to administer Citigroup or Bank of America? If that's the case then Treasury and the Obama administration has to walk a very fine line: muddle along for now while building up for an eventual takeover.
- cleavet
March 2, 2009 at 2:39pm
Regulation and policy in the last few decades favored capital concentration. That capital then sought more profit. This drove the bubbles. It was regulation that got us in the mess, and regulation that will get us out. To say that gov is not the answer fails to notice that gov was the answer that got us in trouble, gov under the guidance of the financial community. Now that the rich have vastly increased concentration through regulation (deregulation was in a context of law and supervision) of course they would argue against gov "interference". And of course those who have been marginalized would argue for new gov actions. We are not facing the fact that gov money to the banks will not bring back the consumer economy,and neither can capital. We are in a difficult period where rebuilding will occur very slowly, arriving in a new place,not a bounce back to the old, and the costs along the way will be great.
- doug carmichael
March 2, 2009 at 2:53pm
The financial markets roil with every new annaouncement and move by the Ovomit administration. This sickening downward spiral reflects a worldwide consensus that Ovomit and Geithner clearly do not know what they are doing or an assessment that their motives are not pure. Ozombie would like nothing more than to launch the next Depression, all the better cover for his populist rhetoric and dark desire to re-work society along socialist lines. We have a Trojan Horse inside the White House gates!
- Peter Kent
March 2, 2009 at 2:57pm
The amazing thing is that writers at TNR pride themselves of being supremely well-informed in matters of policy and economics. Like that column by Chait a few weeks ago that started by boasting how he understood "Keynesian theory" while all the ignorant critics of the Obama administration just don't understand it, as if "Keynesian theory" was general relativity. Scheiber has breathed the common liberal Washington wisdom for so long that he actually believes it! And he believes himself to be smart because of it! He believes that every problem (bank problems, loss of consumer demand etc) can be solved by massive injection of public money! And that deficits don't matter, because "Keynesian theory" assures us that growth will come back in short order. He is going to have it his way, of course. let's wait and see what happens...
- Carlo
March 2, 2009 at 3:51pm
Obama is doing EXACTLY what he said he would do. Of course he had to scare the pants off people to get them in the mood to go along. This was a crass and blatently dishonest move and one worthy of Democrats and their relentless move to socialism and power. Is it just that most Americans are "low information" voters? How is is that they were sold this opportunistic socialistic administration in the form of a really rellly COOL Black president? I am so disappointed in the American people. Just heard the newest socialist addiditon to the Obama administration say that "we can't fix the economy until we fix Healthcare" How many Americans believe that socializing medicine will "fix" it? See what I mean. Stupid. just stupid.
- Kate
March 2, 2009 at 4:06pm
Loosen up credit all you want, it won't do anything because I'm up to my limit. Cut taxes - knock yourself out, but it won't help me now. I've been rolling over NOLs since first-year expensing came in under Bush. And to think that some say tax-cuts have no stimulative effect. News flash: they sure do. But they're not magic, because like I said, I'm totally tapped out, and just keeping my head above water by now. See, it took me a long time to realize the real nature of the problem. It's not so much the spending, and it's not so much the taxes, though it'd be better if there was less of those from the get-go. What it is is policy: the changes in spending, the changes in taxes, the changes in the interest rate...all those things that make us believe the environment is something other than it is; but how could we have known? Reality is what it is, even when it's based on unreality. So we run our lives and businesses in ways we would not have otherwise, were things more to have been predictable all along.
- tapped out
March 2, 2009 at 4:53pm
This is the Little Big Horn for Keynes. But he isn't the only thing soon to be in the trash. So are the supporters of big government because it is also a lie. This is first class crisis of the type that is not possible without the State. On par with major war. With the appetite for destruction(of lives and treasure) that the State has I wonder what we ever saw in it.
- aware
March 2, 2009 at 7:25pm
Some thoughts from the village Republican. I think the problem with the financial system has become much more political. The anger in the country against "Wall Street", including the now absorbed mortgage abusers, like Countrywide, is palpable. The "people" are mad as hell and not gonna take any more. They have not figured out that their preferred remedy may be tantamount to punching themselves in the face. Geithner et al cannot be effective without the support of their president, who 1) cannot figure out whether he prefers to solve the financial crisis, and risk political loss by laying out the real costs of reviving the banks, or 2) exploit the anger against the banks, the rich, etc., and push other, more popular (momentarily) agendas. He faces the choice between FDR or Huey Long. Nationalization? Maybe. Non-nationalization. Maybe. How about figuring out a decisive policy and serving up a dose of bad news to your supporters, with the hope of "normalcy" down the pike? Serving up legislative objectives to congress to sort out is a disaster. But that seems to be the preferred course of the new administration. I wish Obama well, for my own sake as well as the country's. Let's see what happens.
- lsernoff
March 2, 2009 at 8:06pm
Whether folk like it or not, Health care is a crucial part of our recovery. Ask any small/medium business owner who supplies health insurance. What are their costs? What's it like to get massive premium increases every year? Better yet, as the families without health care. Or if want a real eye opener, ask General Motors, IBM, Chrysler, Ford, HP or others firms on the cost of health care and what it does to their overall competitiveness in a globalized economy? When Health care is a huge PRIVATE cost in the US and the rest of the industrialized west has single payer (ask Germany if they feel very Socialist) and correspondingly lower costs as a business what does that do to our competitive position in world markets? We don't have the best health care - even close. Infant mortality and overall lifespan statistics bear that out. So does our per capita cost for Health care. Calling serious health care reform "Socialized Medicine" is about the same as when Bush called his license to pollute the "Clear Skies Initiative". Whether we like it or not, we've pretty much run out of road on the "free market" and unregulated markets. Greed doesn't come with brakes - just the cliff you run off of eventually.
- Larry
March 2, 2009 at 8:51pm
Mme. Defarge will write economic policy if the congress is left to sort it out.
- lsernoff
March 2, 2009 at 11:02pm
This is an exceññent article- Unfortunately, most of the comments so far have been written by people whpose minds have been belittled by ideological fanaticism or hate mongering. I enjoy intelligent discussion, but name calling does not merit response.
- Impatient
March 2, 2009 at 11:41pm
From which caves did all these freaks (above) emerge? 'Ovomit', the 'fuckin moron'?...a 'really rellly [sic] COOL Black president'?...did they shut the Joe the Plumber Forum down, and so they all oozed over here?
- porkido
March 3, 2009 at 2:19am
Does anyone out there think the president and his pack of 58 commies would ever let GMC file. Answer! never ever happen. Do too the fact that union labor has had the comrads bought and paid for sence before ever.I know very vary little about the market but if the obove statement is true, would it not be a wise time to buy boo coo 2$/ shares of this stock. Not exactly on subject but close.
- johnymac
March 3, 2009 at 3:37am
I guess small business owwners are aginst health reform and thus lowering their costs?
- wayne maffett
March 3, 2009 at 12:30pm
I think Norm wrote a very insightful piece here. There is yet another consideration to ponder that may make Geithner hesitate about going ahead with nationalization: the lack of senior civil servants trained to run nationalized financial institutions. This dearth of regulatory/managerial talent is where we see the negative consequences of all the cutting of government training budgets that began under Reagan. The government, I suspect, simply lacks the human capital to take this job on. In many ways you get the government you're willing to pay for. I was disgusted when I learned that senior Korean civil servants get 2 full years of full-time training at taxpayers expense. When I was on the faculty at the Federal Executive Institute it was all we could do to get our folks one month of executive education. In the end, "gubmint incompetence" is largely a function of gross investment. The private sector wanted it that way. So now that it's broke, they own it.
- Declan Murphy
March 3, 2009 at 1:05pm
I agree with Isernoff that "Serving up legislative objectives to congress to sort out is a disaster." Obama needs to use the country's brain trust, come up with policy, bite the bullet and send it off to Congress. Let the Republicans politicize it; he has the authority. The campaign is over.
- Jane B.
March 3, 2009 at 1:24pm
I am amazed by the gross ideological blindness, and gross stupidity exhibited by so many of the comments on this article. While I respect the initiative of so many business owners, I find the prospect that people are not spending money because they do not have money to be more of an influence on expanding a business than that the government is taxing the business owners more. Also, to pretend that the Obama administration is not trying every possible way to avoid nationalization, is to be blind to the fact that ever non-nationalization solution that the administration keeps proposing amounts to the same solution - pay or subsidize privately owned bad debt holders with taxpayer money. Finally, maybe some of the hysterics might want to ponder that if nationalization is such a terrible socialist solution, why did the Bush admininistration exercise it over and over again with a large number of privately owned banks. If such hysterics would simply breathe, calm down and try and look for effective answers to real world problems they might realize that nationalizing banks temporarily, writing off their bad debts, giving their bondholders a substantial loss and then selling the good assets back to the public is probably the most effective answer available to a problem of massive bad debt keeping our banks from relending. Calm down, and recognize that any nationalization is just a fancy way of saying put through bankruptcy when the bank is in fact bankrupt.
- JT
March 3, 2009 at 3:20pm
Not sure how Treasury is going to function medium term during a financial crisis in which finance has no confidence in the country's treasurer. Curious as to how long it will take Obama to fix this. Meanwhile, I understand that Obama has submitted no candidates to the Senate for the 18 political positions that report directly to the TreasSec. In other words, however incompetent you think Geithner is he as the added disadvantage of being utterly alone and unsupported in his post. But hey, tomorrow night's Wednesday and that means party night at the WH. p.s. Lets not call this keynesian. This is so far beyond "priming the pump" it bears no relationship to Keynes who was both an investor and an anti-socialist.
- restcase
March 3, 2009 at 3:30pm
Well, let me ask you this Martino and k: Are you telling us that your lack of expansion and "preemptive" laying off of employess has nothing to do with a diminshed demand? And if you have an adequate workforce to meet your demand, are you saying that a reduction in taxes would cause you to hire more workers? Unless the additional workers are the type that could create demand (e.g., salsespersons or marketers), that would be irrational. Right now, we need some way to stimulate demand.
- dhurtado
March 3, 2009 at 4:54pm
I love it when investors whine like "welfare mothers" (you remember them) - as if they are entitled to a profit simply because they are investors. Obama's economic program is doing everything it can to help investors. While conservatives call it "socialism" consider where you might be as an investor (and where the dow would be) if not only Lehman, but Bear Steans, Citi, Bank of American, JP Morgan Chase, Wells, Merrill and of course AIG had been allowed to fail. You know - a little destructive capitalism and planting of new seeds for the future. Think of the situation if Obama had been the reincarnation of Herbert Hoover - or the GOP House membership. My grandmother was an Italian communist. She had pictures of Gramsci and Togliatti in the house (in front of a small statue of the madonnaof course); she swore that FDR kept the revolution from coming to America. Thanks your lucky stars investors and stop your whining. Wall Street brought this on itself and is getting more help than it deserves. :-)
- toritto
March 3, 2009 at 7:47pm
So many act as if this "crisis" was a surprise. I and many others have been planning for this for years. People kept buying things they didn't need with money they didn't have (they borrowed it and risked losing their houses...and now they should lose them) that they never will be able to repay. Read the book "Financial Reckoning Day" by Addison Wiggin and Bill Bonner (published in 2003). The truly smart money knew it was coming because "Whatever must happen will happen" and "All bubbles must eventually burst." All the Federal Reserve Board and the Treasury and the rest of the government could do is delay the reckoning and, ultimately, make it worse. In October 2007, I shorted a basket of 20 stocks, including Google, each of which have since lost more than 50% of their value and made 2008 the year in which I became rich (or at least richer). Of course, the government is my partner only if I make a profit. I owe the IRS and the California tax theives almost half of my winnings but, had I lost, I would only get a $3,000 deduction; talk about a rigged game. Just bet that Comrade Obamba (see it really was important that Bill Ayers and Bernardine Dohrn were his good friends) and the rest of the apparachiks will do the wrong thing and you will be a winner.
- commissioner
March 6, 2009 at 1:06am
Who the hell are these small business owners not hiring because of the the threat of increased payroll taxes? IF Congress raises the threshold for exemption from Social Security Taxes, that affects only new hires earning more than $106,800/yr. Now, I know small businesses, and I know damned few small business employees in that category, especially new hires. And even if Congress doubled the limit, and you were the rare small business paying people an average of, say, $120,000/yr, that would increase the business owners tax by all of $1000, on a total employment cost of about $150,000 or more. Here's what I see when I hear a small business owner saying the threat of increased payroll taxes will keep them from hiring: a liar. They may oppose such an increase on principle, or they may like to use the canard because it sounds good, but for the vast majority of them, the payroll tax limit has an exceedingly minor effect on their cost of labor.
- Steve Demuth
March 7, 2009 at 9:52am
Well, Commissioner, you could always have done productive work for a living. You entered the "rigged game" by choice because you thought you could make a killing. Congrats on your success, but I see no reason why you should be exempt from paying taxes -- If I get a big raise my taxes will go up substantially; it's the same for you with your stock market gains. I think toritto's grandmother was correct -- Roosevelt saved American capitalism. And toritto is correct to criticize investors who are complaining about socialism while enjoying the benefits of not having our markets collapse completely. And thanks to the 20% of posters here who said sensible things of one sort or another, but there really are a lot of wingnuts who post to the articles. Once again, let's have posting comments to articles restricted to subscribers to keep the casual wingnuts out.
- JEFF FREY
March 8, 2009 at 1:27am
Toritto: How is President Obama's plan helping investors? Also, since you bring up Herbert Hoover, he raised corporate and individual income taxes substantially during his term. The top marginal rate went up to 60%. President Obama might very well be the reincarnation of Herbert Hoover. Finally, you have forgotten that many non-wealthy people through 401K plans and other retirement instruments are involved in the stock market. When you talk down the market, as Obama has, someone's "grandmother" loses even more from her diminished retirement. Is this the creative destruction you are talking about? Do you find it amusing that this elderly woman without a defined benefit pension might have to go on public assistance, even though she saved for her retirement? Friend, you need to clear out your ear wax. What happens on Wall Steet happens on Main Street.
- Walter
March 8, 2009 at 4:56am
I think anyone being completely honest about Krugman should simply call him a "former economist". It acknowledges his talent and prestige while pointing out that his current incarnation has nothing to do wit economics and everything to do with ideology. Nothing else explains the fact that with all of his talent, his writings post-2003 or so are held together by no other principle than pure political partisanship.
- Bob
March 8, 2009 at 10:39am
Noam Scheiber: "The public believes the same bankers who created the mess are now gorging at the federal trough." Well, the public's believes are pretty much reality-based then. Noam Scheiber: "If nationalization were part of the equation, prompting managers and shareholders to scream about the expropriation of assets, the public might finally see its bloodlust satisfied and be willing to part with more cash." Ah, if only the government would satisfy the public's bloodlust! Great idea, because then, you suppose, the public wouldn't object to being robbed. You call that " a decisive final step". But really, you should be a little less careless, proposing final solvations, bloodlust and the like.
- Karl Kraut
March 13, 2009 at 7:14am