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One administration official sighs in the presence of Ezra Klein

Mandos's picture
Submitted by Mandos on Tue, 03/24/2009 - 11:03am
Departments: 
Department of War
Thread: 
Economic Apocalypse
Tags: 
Ezra Klein
bank nationalization

Ezra Klein has been talking to anonymous administration officials. And they explain why they don't want to nationalize the banks. I link, you decide.

...The trouble is that the government doesn't know how to price anything. So if you want prices, you need private investors. And if you want private investors, you need to overcome the skittishness that's taken hold of the markets. And if you want to overcome the skittishness that's taken hold of private investors, you need a deal that they virtually cannot refuse. This is that deal. In its terms, it's all private upside and public downside. But even if the public downside here is more galling than is something like nationalization, it's not actually bigger. Quite the opposite.

"Many of the critics," one official sighed to me, "are underestimating the difficulty of their counterfactuals." Ben Bernanke does not appear to think the administration has the legal authority to forcibly take investment banks into receivership. What happens if a legal challenge disrupts the process?...

...So the Geithner plan is really two bets in one. The first is that this is not the worst case scenario and does not require the fixes developed for the worst case scenario. The second is that if this turns out to be the worst case scenario, then we still have those fixes available to us, and the need is clarified among the actors -- like Congress and the market -- whose reaction in the absence of consensus could scotch the whole thing.

Personally, I think the government does know how to price at least some of the liabilities that we're given to understand are at stake: nada.

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Submitted by jawbone on

I thot the biggies became bank holding companies to be eligible for the TARP I funds? Indeed, Lehmann asked to become a bank holding company and Paulson-Bernanke refused (wasn't Geithner part of that decision making group--with input from Goldman Sacks?)--with all those interesting ramifications.

Is the administration trying to resuscitate these banks to go back to being investment banks, free of regulation? Or what? Just a matter ot referring to Biggest Bankster as investment bankers?

Interesting. But, of course, being an econ dummie layman, I could have this all wrong.

Oh, and pricing? Anyone talking about those "loan tapes"?

Mandos's picture
Submitted by Mandos on

The goal is obviously to return to the status quo ante of the banking crisis, on the theory that this is a state of disequilibrium in a system that can reach a stable equilibrium with proper management, as opposed to an exposure of a fundamental flaw in the system. If you accept a hypothesis of this form, then attempting to rescue worthless financial instruments makes more sense.

Submitted by jawbone on

fiscal system. He doesn't have someone advising him who thinks otherwise.

Bill Clinton, who disappointed me in many ways, had an econ team which ranged from Rubin to Reich to Stiglitz. Hillary, as I learned only during her primary campaign (why was this not well pubilcized??), had worked with the Prof Yunnus, creator of mciroleniding, to set up one in Arkansas. Yunnus referred to it as the first version of his banking idea outside of poor countries. Of course, she had to work through Bill as governor of AR, but it was put in place. The Clintons had a wideranging knowledge of finance and banking. (Not to mention that little investment mistake....)

On Charlie Rose last night (transcript now available), econ reporters and Krugman were on, discussing why Obama didn't seem to be willing to listen to other ideas. It was a ooncensus that he doesn not really know economic or financy and listens to those he trusts. Those what brung him to the Big Dance.

lambert's picture
Submitted by lambert on

If you get a link on this, please post.

Submitted by hipparchia on

apologies, i have no inclination to really read them...

here

here

here

also, joe nocera [in this charlie rose program that jawbone linked to elsewhere] says that fdic has no authority to take over bank holding companies.

which is basically correct, since the repeal of glass-steagall made it legal for bank holding companies to own eg insurance companies. taking over an insurance company is outside the purview of the fdic. apparently the obama solution to this is to create a new agency that has the authority to take over these chimeras.

it would be great if we could go back and do what has already been proven to work: break these industries back apart into their respective silos, fdic takes over the banks, etc... all that icky new deal stuff that the banksters [and apparently obama too] hate hate hate.

Mandos's picture
Submitted by Mandos on

...it is the Holy Market that knows the pricing, not individual banksters. The True Knowledge pervades their existence, being greater than the things they conventionally "know". And when the Holy Market "misprices" derivatives, it has correctly priced them all at once. It's all too complicated for you to understand. I call this econo-zen.