images-8Rockefellerimages-9J.P. Morgan in action

Obama’s budget is smart and far-sighted.  I wish I could say the same about the bank bailout.  We are certainly not out of the woods on this one.

On April 1st, the New York Times ran an Op-Ed piece by the noble winning economist, Joseph Stiglitz.  (There is an excerpt and  link below.)  It’s about as clear a presentation of the issues involved as I have seen (in a short piece). And it lays out why we should be concerned about the plan, which is no doubt the work of Geithner and Summers.  I worry, as many do, that the red-herring rhetoric of “nationalizing” the banks will prevent us from properly addressing the situation.  I worry that Geithner and co., for all of their good intentions, are too close to Wall Street not to be sucked into the myth that “nationalizing” must mean socialism or the appearance of socialism.  (The irony here is that this is precisely the rhetoric that the right has used so successfully in the past to prevent such needed programs as universal medical insurance.)   I worry that this plan is viewed as a shrewd move to get the Wall Street/banking crowd on board by Geithner and co., but will end up providing the banks only a temporary boost in liquidity, yielding “profits” that will once again allow them to laugh all the way to their own banks.

images-101J.P Morgan headquarters

My hope is that if the plan doesn’t work, the Administration will quickly turn around and say, we tried, and move on to a solution more appropriate to the problem.  I am confident that Obama the pragmatist would make such a move.  The question at hand: how hard will his own soft ideologues fight to avoid the appearance of “nationalizing” the banks?

Obama’s Ersatz Capitalism (excerpt)

by JOSEPH E. STIGLITZ

THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency. . . .

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

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