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Theories of TARP evolution
Via J. Wallace, here is a tableaux of how U.S. banking/bailout proposals have evolved. And of course the Geithner plan has hardly proven itself overwhelming. I offer up the following hypotheses, none of which settles the issue for me:
1. U.S. banks have been known to be insolvent for some time and everyone is simply afraid to come out and admit it.
2. The economists offer up coherent plans, but they are then bogged down by the input of competing advisers and Karl Rove-like politicos.
3. The goal of the various plans has been to confuse Congress.
4. The Republicans were just stupid and irresponsible and now the Democrats are smart but they lack experience at the rudder and they need another try to get it right.
5. The Republicans were just stupid and irresponsible and now the Democrats are just stupid and irresponsible.
6. The Obama team is brilliant and we are the silly ones who insist on imposing simple narratives on all policy actions. Good policy should be difficult to understand.
7. The Democrats made the mistake of setting an artificial deadline and by the time it came around they realized they had nothing so they put up what they had, which wasn't much.
8. We need to re-benchmark our expectations because the world doesn't work as well as we used to think. What we used to consider "bad policy" is, in reality, compared to the relevant alternatives, "reasonably good policy."
9. U.S. banks are insolvent but we can muddle through if we ignore that fact and let them evolve back into solvency. What we need is a plan which lacks transparency and Geithner delivered.
10. All of the above.
Posted by Tyler Cowen on February 10, 2009 at 05:47 PM in Political Science | Permalink
Comments
I vote for #5.
Posted by: Jacqueline at Feb 10, 2009 6:23:59 PM
11. The economists can't deliver a good plan because in order to do so they would need "entrepreneurial" assessment and action (that is, they would need to be immersed in the tiny and contingent details of the banking situation, consumer and investor psychology etc.) but they only have "theoretical" solutions, that is, solutions that can only ignore the contingent but crucial details of the situation.
To this fundamental problem, the media and the political class add the non-fundamental problems of curable ignorance and stupidity.
Posted by: Alex at Feb 10, 2009 6:29:33 PM
I like #8. We're in a way different set of circumstances now, and we cannot think in terms of the old framework. I also like #11; I don't think there are enough people who actually know what is happening at ground level involved in the shaping of policy/solutions.
Posted by: Alex C at Feb 10, 2009 6:45:53 PM
12. The GOP never met a wealthy crony they wouldn't protect against market discipline. The Democrats never met an untalented, lazy and imprudent man they wouldn't pay off with money confiscated by the talented, hardworking and prudent.
Posted by: guy in the veal calf office at Feb 10, 2009 6:52:12 PM
a. Government does not solve problems; it subsidizes them.
b. I am not worried about the deficit. It is big enough to take care of itself.
c. The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
sniff, I miss the Gipper.
Posted by: Reagan at Feb 10, 2009 6:57:15 PM
All are somewhat compelling but I like #5 the best.
Posted by: Noah Yetter at Feb 10, 2009 7:09:12 PM
i am insolent.
Posted by: babar at Feb 10, 2009 7:11:35 PM
I'm just glad we can tell the difference between Republicans and Democrats again.
Posted by: Jason (the commenter) at Feb 10, 2009 7:12:37 PM
#1 and #5.
Posted by: David at Feb 10, 2009 7:35:56 PM
wow.
Posted by: odograph at Feb 10, 2009 7:41:30 PM
longer: "there is no paddle" (in that moment Tyler received enlightenment)
Posted by: odograph at Feb 10, 2009 7:42:38 PM
2,5, and 12, with the wrinkle that both sets of pols are desperately trying to bribe marginal voters yet leave those same voters with the smug impression that it was all someone else's fault.
Posted by: jonm at Feb 10, 2009 7:56:51 PM
How did we manage to do this back then?
"The Resolution Trust Corporation (RTC) was a United States Government-owned asset management company charged with liquidating assets (primarily real estate-related assets, including mortgage loans) that had been assets of savings and loan associations (S&Ls) DECLARED INSOLVENT by the Office of Thrift Supervision, as a consequence of the savings and loan crisis of the 1980s....Between 1989 and mid-1995, the Resolution Trust Corporation CLOSED or otherwise resolved 747 thrifts with total assets of $394 billion."
[source: Wikipedia, emphasis: me]
Posted by: Mr. Econotarian at Feb 10, 2009 8:05:04 PM
I think this post was written by Tyrone, except for maybe #7. Totally off the deep end and a bit disrespectful IMO.
Posted by: Paul N at Feb 10, 2009 8:16:57 PM
Paraphasing J Paul Getty:
If the US owes the world $500 billion that's the US taxpayer's problem. If the US owes the world $15 trillion, that's the world's problem.”
Maybe the best solution is to run up a massive debt, move to a small, island country with natural resources, plenty of cheap heat & electricity and beautiful women.... oh yeah, that's been tired, sorry Iceland.
Posted by: J. Wallace at Feb 10, 2009 8:25:09 PM
13. Just another example of Washington D.C.'s sociopathic culture of putting the interests of special interests ahead of (and at the cost of) the majority's general interest. This bill isn't qualitatively worse than other law, just bigger.
Posted by: www.google.com/accounts/o8/id?id=AItOawkKU4CnmkVJyyiEGdbbavdzvfh6eXe01ag at Feb 10, 2009 8:31:36 PM
I would modify #5 with "blind and stupid".
Posted by: Mike C at Feb 10, 2009 9:15:53 PM
5a: Under the Republicans, Treasury was stupid and irresponsible; under the Democrats, things are the other way around.
Posted by: DougT at Feb 10, 2009 9:34:04 PM
14. A deliberate attempt to sow fear and panic creates an opportunity to slip the wallet of the distracted onlooker.
Posted by: rluser at Feb 10, 2009 9:35:26 PM
We have two problems:
One, we're a lot poorer than we thought we were two years ago. Only years of hard, smart work are going to get us out of that problem.
The other problem is something the government might possibly be able to help with. And that is that it's currently prudent to assume there is a high probability that any financial institution you might want to deal with could be broke because their books are black boxes, especially the mortgage-backed securities they own. So, you don't want to invest in them or lend them money because you don't understand their financial position. This uncertainty over the value of financial instruments linked to mortgages can make things even worse than they really are -- All we have to fear is fear itself, etc.
So, it's time for the government to open up the black boxes by requiring all parties to mortgages, mortgage-backed securities, and derivatives tied to mortgage-backed securities to post everything on line. Privacy be damned.
Then, let Wikipedia or something else like that start accumulating information pertaining to the value of each mortgaged property in America: connect to Google Maps street shots, Zillow price estimates, how much comparable homes in the neighborhood are renting for, Census data on local demographics, you name it. This info on each mortgage could then be linked to the mortgage-backed securities that hold slices of that mortgage. From that, informed market prices for mortgage-backed securities (and related derivatives) could emerge.
This process of wide-open public price discovery would no doubt lead to some pretty appalling discoveries about what prices for these financial assets ought to be, but so be it. It's better than not knowing how much gigantic assets are worth.
Posted by: Steve Sailer at Feb 10, 2009 9:36:06 PM
a big spike in inflation is all but inevitable.
Posted by: sd at Feb 10, 2009 9:38:41 PM
I don't buy the systemic risk argument. The TARP is to save the fat cats. People who leveraged 30 to one with other people's money should be working at McDonalds. The depositors and policy holders should be partially protected, but the stock holders and management should not. The economy is over-weighted in housing, financials, and government. There needs to be lots of bankruptcy including California. When people in those jobs find new and different jobs then the recession will be over. Repeating the misteaks of the last 15 year won't help.
Posted by: WS Grizzard at Feb 10, 2009 9:38:58 PM
#1, but we need Pre-Packaged Chapter 11 bankruptcy for ALL the Big Banks with toxic assets they've poisoned themselves with. Bankruptcy, not nationalization.
The 40% share of corporate profits being made in 2006 by the financial industry was Ponzi scheme betting on bets made by betters who didn't know they were betting -- except everybody knew "house prices never go down".
Like not needing newspapers, the internet means the future USA doesn't need nearly as many bankers for taking saver's cash and allocating it to good production / distribution / service businesses.
The growth of 'finance' was huge mal-investment; even worse than over-building residential houses.
The best help for the banks: huge Tax Cuts, now, for people and companies, so that there can be more savings flowing into the banks while at the same time reducing the indebtedness of people and firms.
It's insane that an argument against Tax Cuts is that not enough will be spent, because too much will be saved -- while at the same time arguing for special gov't cash to go into the banks.
Posted by: Tom Grey - Liberty Dad at Feb 10, 2009 9:56:56 PM
Tyler,
Would you please explain your own views on the evidence against #1? Perhaps in a separate post.
Of course, I think #1 is the most likely explanation so I'm especially interested in hearing why it doesn't settle the issue for you.
Posted by: mr commenter person at Feb 10, 2009 10:12:46 PM
If the current plan is unclear (which it is) I think it is reasonable to add Krugman's suggestion as
15. Obama's going to nationalize the banks, but doesn't want too much on the table at once. He cannot disclose a plan to nationalize banks before the stimulus is signed. Geithner's "plan" is an intentional obfuscation in service of political ends; but ultimately it serves the end of nationalization, which the Obama team believes to be the best policy action.
Posted by: mk at Feb 10, 2009 10:35:31 PM
