With Geithner Plan: "The Zombie Ideas Have Won."

Michigan Congressman John Conyers drew loud applause from a large, Obama-friendly crowd when he suggested the other night -- on a stage we shared in Massachusetts -- that Treasury Secretary Timothy Geithner might have reached his sell-by date.

The next evening, speaking at an event in Wisconsin, I made the same suggestion and got the same response. (The only noisier and more consistent applause was for the suggestion that the United States should be withdrawing troops from Afghanistan, rather than sending them in.

When you leave Washington, it very quickly becomes clear that Geithner -- and, more importantly, the treasury secretary's approach to the economic meltdown -- has lost the confidence of progressives. He is Wall Street's man doing Wall Street's bidding, arguably as bad a player as anyone that John McCain would have put in the position.

Now comes Nobel Prize winning economist Paul Krugman, with his assessment of Geithner's plan for using public dollars to help private speculators buy up toxic assets.

Krugman is brutal -- or, to be more precise, brutally honest.

"The Geithner plan has now been leaked in detail. It's exactly the plan that was widely analyzed -- and found wanting -- a couple of weeks ago. The zombie ideas have won," Krugman writes in his assessment for The New York Times.

"The Obama administration is now completely wedded to the idea that there's nothing fundamentally wrong with the financial system -- that what we're facing is the equivalent of a run on an essentially sound bank, the economist continues.

Krugman's bottom line:

This plan will produce big gains for banks that didn't actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won't be able to come back to Congress for a plan that might actually work.

What an awful mess.

Comments (42)

1. I heard Obamas economic advisor/spokeswoman say "The fundamentals of our economy are strong", last week.

   I wept in agravation.

   Fight The Man, become The Man.

   Posted by crabwalk at 03/23/2009 @ 1:58pm

2. please watch:

   http://www.youtube.com/watch?v=XOYAuk809fY&fmt=18

   very funny.

   Posted by frosty zoom at 03/23/2009 @ 2:07pm

3. If John Nichols is calling for Geithner's resignation....

   he should be safe until 2016.

   Posted by Mask at 03/23/2009 @ 2:08pm

4. Yes, funny, zoom. But not everyone, unlike perhaps you & I living outside the US, can afford to find so amusing the deep morass into which the US is being led ever deeper by its leaders.

   Posted by sloper at 03/23/2009 @ 2:23pm

5. Posted by frosty zoom at 03/23/2009 @ 2:07pm

   Er, Al Gore won a few more prizes too but he ain't pres. Seems the new con repubs gone a long way getting anti-intelligence conditioned into the pop.

   So the pop blowing bubbles?

   Even got people thinking intelligent design is about intelligence... Clear skies act about clean air...etc.

   24/7 far right talking heads are pounding Geithner and Obama and it's koolaide for empty jugs to pour right back out.

   Posted by hsuBfools at 03/23/2009 @ 2:33pm

6. Here's the kicker for Obama the Team of Super Harvard Friends (or Super Goldman Friends, take your pick):

   Obama has lost my vote (progressive, reviled democrats only slightly less than Republicans for last 25 years). I had a rush of excitement on seeing the huge crowds at my voting station -- all pro-Obama -- in a predominantly black section of Brooklyn.

   If there are many more like me out there, Obama isn't doomed in 2012, but _next_ year in the congressional elections. If so, serves him right. A total turncoat.

   Posted by HuSan at 03/23/2009 @ 2:33pm

7. If there are many more like me out there, Obama isn't doomed in 2012, but _next_ year in the congressional elections. If so, serves him right. A total turncoat. Posted by HuSan at 03/23/2009 @ 2:33pm

   Maybe '10, but certainly '12, when Hillary will go gunning for Obama in the primaries & the GOP nomination, worth something after Obama's immolation, will be fought for by multimillionaire Romney against multibillionaire Bloomberg.

   Whatever that '12 outcome, We the People lose.

   Posted by sloper at 03/23/2009 @ 2:46pm

8. Sticking the trillions in debt to new con repubs al a hsuB/cHeney admin will be easy if the economy begins to improve - even in small steps.

   The DOW has already moved up 1000 points from its lowest point.

   Are the new con repubs scared, always.

   And will the focus shift to previous new con repub illegalities exposure if the economy continues to improve even in small steps-- surely.

   Posted by hsuBfools at 03/23/2009 @ 2:46pm

9. Continue to invest in income property, cons. If & when the toxic assets ever "recover" & we're back to square one, there'll be ever greater numbers with no other alternative than to reside in your slums. The American Dream will become a single wide in a retro trailer park.

   Posted by Sorelish at 03/23/2009 @ 2:51pm

10. Finally some sliver of sanity from the left! We have been telling you this all along, but it has been all in vain.

    Thanks to Obamanation and the Demoncrats porkulus spending bill; the continued payoffs to political friends like unions and extremist groups; and the continued shoveling of taxpayer dollars into the black hole of failed financial institutions; along with the toxic hidden taxation doubling and tripling energy cost that environmental condemnation of the oil and gas energy that drives the productivity; it can be seen now how they are DESTROYING the nation from within! (maybe except for complete idiots)

    Posted by comancheamerican at 03/23/2009 @ 2:57pm

11. What I find so odd here is that the Federal Reserve System is functioning EXACTLY in the way it is designed, yet everyone seems to be surprised.

    Our entire central banking system is set up to protect the banks first at the expense of the people. In fact, the Fed is nothing more than a cartel of those banks.

    Soooo, what were you expecting? The people first?

    That train left the station over 90 years ago. Get real.

    Posted by freiheit1 at 03/23/2009 @ 3:03pm

12. If Krugman's comment is true then good for Obama, because there ISN'T anything fundamentally wrong with the system: There is something wrong with the current crop of leadership RUNNING the system, starting with Chris Dodd and Nancy Pelosi working up.

    Posted by CHIP THORNTON at 03/23/2009 @ 3:18pm

13. NY Times - Paul Krugman March 23, 2009, 10:11 am Geithner plan arithmetic

    'Leave on one side the question of whether the Geither plan is a good idea or not. One thing is clearly false in the way it's being presented: administration officials keep saying that there's no subsidy involved, that investors would share in the downside. That's just wrong. Why? Because of the non-recourse loans, which reportedly will finance 85 percent of the asset purchases.

    Let me offer a numerical example. Suppose that there's an asset with an uncertain value: there's an equal chance that it will be worth either 150 or 50. So the expected value is 100.

    But suppose that I can buy this asset with a nonrecourse loan equal to 85 percent of the purchase price. How much would I be willing to pay for the asset?

    The answer is, slightly over 130. Why? All I have to put up is 15 percent of the price -- 19.5, if the asset costs 130. That's the most I can lose. On the other hand, if the asset turns out to be worth 150, I gain 20. So it's a good deal for me.

    Notice that the government equity stake doesn't matter -- the calculation is the same whether private investors put up all or only part of the equity. It's the loan that provides the subsidy.

    And in this example it's a large subsidy -- 30 percent.

    The only way to argue that the subsidy is small is to claim that there's very little chance that assets purchased under the scheme will lose as much as 15 percent of their purchase price. Given what's happened over the past 2 years, is that a reasonable assertion?

    Update: Another way to say this is that by financing a large part of the purchase with a non-recourse loan, the government is in effect giving investors a put option to sweeten the deal.'

    Posted by OneVote at 03/23/2009 @ 3:23pm

14. The two parties are vehicles for the bipolar ruling class approach to the rabble, how to keep them from storming the castle gates. Party D says let's pacify them with free cheese and cable; Party R rebuts in the words of Biggie, "What you think all the guns is for?... Betcha Soros wont slip, I got the calico with the black talions loaded in the clip..."

    Guns up!

    Posted by gangpapist at 03/23/2009 @ 3:36pm

15. talons

    Posted by gangpapist at 03/23/2009 @ 3:38pm

16. I wonder which of Obama's real-world advisors is going to ping his Blackberry with the bad news that he's getting taken. Not holding out much hope there. I guess we'll see how smart the guy really is. It's almost as if there's a weird magnetic disturbance around Washington DC that prevents the human brain from doing basic arithmetic. Can he resist the alien force field? Will justice prevail? Stay tuned ...

    Posted by MyParadigm at 03/23/2009 @ 3:44pm

17. What was destroying 'We the people' was the systematic neglect by our (new con repub robber baron paid off) cops. The people we put in place and elected to protect us from this criminality were compromised. The new con repub robber barons leveraged deregulation from an impeached and constantly under attack president and then rewired voting machines on a dazed and confused over teched-out citizenry being constantly inundated with diametrically opposed propaganda negating info a la faux spews.

    The previous 8 years of anti-American lawlessness ensued.

    And now when it can all come out, the faux spews propaganda machine is revving into its highest gear attack mode. Their inanity is extreme and the preprogrammed people's as well.

    In order to ever deprogram the citizenry, the lying faux spews propaganda machine has to be squelched.

    Posted by hsuBfools at 03/23/2009 @ 3:45pm

18. Perhaps now is the time to ask, as I am not up on the current rules: Is it still women and children first?

    Posted by theo51 at 03/23/2009 @ 3:46pm

19. CHIP THORNTON at 03/23/2009 @ 3:18pm

    Actually there IS something fundamentally wrong with the system - it's grossly under-regulated - and the problem is with the PREVIOUS, not the current crop of politicians. Let's be charitable and give them a few months more to f#@k up, shall we?

    Posted by MyParadigm at 03/23/2009 @ 3:50pm

20. Think this news today will change people's thinking much:

    "The actions that we're getting from a policy standpoint are very helpful in removing the sand from the gears," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "That is going to be good for the financials."

    According to preliminary calculations, the Dow rose 497.48, or 6.8 percent, to 7,775.86. That was the biggest point gain for the blue chips in more than four months.

    Broader stock indicators also surged. The Standard & Poor's 500 index rose 54.38, or 7.1 percent, to 822.92, crossing the psychological milepost of 800. The Nasdaq composite index rose 98.50, or 6.8 percent, to 1,555.77."

    Well, considering how much thinking people actually do...

    Posted by hsuBfools at 03/23/2009 @ 4:06pm

21. That train left the station over 90 years ago. Get real.

    Posted by freiheit1 at 03/23/2009 @ 3:03pm

    90 years ago?

    naw. that was just another refinement. this all started the day some cavedude hit his buddy on the head with a rock so he could have two rabbits for dinner.

    Posted by frosty zoom at 03/23/2009 @ 4:12pm

22. And that's why we have cops. We all admit we need someone to keep us from hitting the next guy upside their head for what they have... er, I mean from keeping that other guy from hitting us over the head...

    For those that have even a little asocial behavior-- not having cops or enough cops around is called enabling or deregulation.

    Posted by hsuBfools at 03/23/2009 @ 4:36pm

23. Posted by hsuBfools at 03/23/2009 @ 4:06pm | ignore this person | warn this person

    Heres hoping you put all your money into stocks today to help boster the market! Let us know how that goes for you! No wait, no need to report, see you when the quarterly job and economic figure come out!

    Posted by comancheamerican at 03/23/2009 @ 5:27pm

24. RIO!

    wake the fuck up!

    nixon, ford, carter, reagan, bush, clinton, bush, obama...

    IT'S ALL THE SAME SCAM.

    Posted by frosty zoom at 03/23/2009 @ 5:40pm

25. 'We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.'

    MARCH 23, 2009 My Plan for Bad Bank Assets - Geithner The private sector will set prices. Taxpayers will share in any upside. WSJ

    Everyone got that....lol.......just doing what the founding fathers intended. Another take:

    "Basically, the Treasury is colluding with private speculators to create off-balance-sheet entities, to offer new windfall profit opportunities and disguise the true degree of risk. If this all sounds vaguely familiar, Geithner's Treasury, with no sense of irony, is offering a reprise of the several abusive and opaque gimmicks that produced this crisis, a tour that winds back down Memory Lane, from AIG to Enron."

    "The main purpose of this entire strategy is to disguise the true depth of the hole in bank balance sheets and to prop up insolvent banks, not to repair the larger system," Kuttner wrote. "It has been largely designed by and for the same Wall Street players that created the crisis."

    Blogs Assess the Geithner Plan K. McCormack 03/23/09

    Posted by OneVote at 03/23/2009 @ 5:50pm

26. 90 years ago?

    naw. that was just another refinement. this all started the day some cavedude hit his buddy on the head with a rock so he could have two rabbits for dinner.

    Posted by frosty zoom at 03/23/2009 @ 4:12pm | ignore this person | warn this person

    I wonder if greed and theft is coded in DNA or at least RNA?.........Studies on ancient viruses that have co-evolved along with primitive cellular life suggest that such is a possibility.

    'A virus (from the Latin virus meaning toxin or poison) is a sub-microscopic infectious agent that is unable to grow or reproduce outside a host cell. Viruses infect all cellular life.'

    Wikipedia........

    Hmmmm.....taxpayers get toxic or poisonous assets........must host the virus that creates the toxin.........

    Maybe this goes way, way back indeed.

    Posted by OneVote at 03/23/2009 @ 6:02pm

27. 7775.86 +497.48‎ (6.84%‎) Mar 23 4:02pm ET

    the wheels on the bus......

    Posted by frosty zoom at 03/23/2009 @ 6:14pm

28. the wheels on the bus......

    Posted by frosty zoom at 03/23/2009 @ 6:14pm | ignore this person | warn this person

    But see Goldman Sachs, up an eye popping 15% to close at $111.93/share today.

    Posted by OneVote at 03/23/2009 @ 6:17pm

29. IT'S ALL THE SAME SCAM.

    Posted by frosty zoom at 03/23/2009 @ 5:40pm | ignore this person | warn this person

    If so many actually believe that Obamanation and the Democrats spending spree of economic ignorance is so beneficial to the nations economic and finacial meltdown... then lets see these hypocrits put their hard earned money and retirement investments on the DEAD horse they think will run!

    Mine was untouchable before this mess and will remain that way! The additional available this year and in the next few years will NEVER be seen by any major bank or the U.S. markets!

    The left will soon find that rather than P.C. outrage over their ignorance of word meaning and derivation the rediscovery of the term "niggardly" will become very CLEAR to them!

    Posted by comancheamerican at 03/23/2009 @ 6:45pm

30. by OneVote at 03/23/2009 @ 5:50pm

    Good post...

    It may be best to recognize and respond to two separate problems here...

    1.) The impending financial crisis... you know... that giant wave of potential human misery thats coming towards us fast and furious...

    2.) The faulty implications created by substituting economic indicators for what should be a realistic 'population well-being index'...;^)

    No, really... we can't do any 'hot-rodding' of the economy until we drive it home from the shop... the engines had a bad knocking soundand now it won't start... and we're just milling around nervously, waiting for the tow-truck to hoist her up and take her downtown...

    This should have never happened... with proper maintenance...;^)

    Did ya ever notice how the kool-aid that the right drinks... tells them that its OK to game the system? This is a profoundly revealing revelation... if you like to sell short on your own country... and I'm told these guys think of themselves as patriots...;^)

    Posted by ttr at 03/23/2009 @ 6:51pm

31. Did ya ever notice how the kool-aid that the right drinks... tells them that its OK to game the system? This is a profoundly revealing revelation... if you like to sell short on your own country... and I'm told these guys think of themselves as patriots...;^)

    Posted by ttr at 03/23/2009 @ 6:51pm | ignore this person | warn this person

    Patriotism....this is part of the lie they tell themselves and us. It is self interest first and foremost. Would you take your country and the world to the brink of financial disaster for more money as an individual you don't really need? This is sociopathic behavior at a minimum.

    John Dean's book on the conservative was an interesting exploration of their underlying behavioral traits. The support for imperialistic wars of all kinds is attributed in part to anal retentive desire to hoard and keep others from getting what you got, and authoritarianism obviates the need for critical thinking.

    Researches have isolated a gene for obseity - and I suspect that the genetic component of other destructive forms of greediness and sociopathic behavior will some day be better known. A permissive environment and peer pressure as conditioning forms of behavior are obvious candidates, but there seems to no real effort to reform this environment, and in fact we are really enabling it via bailout and not jail time.

    The saying "it's in his or her DNA" may be more true than we know. This is why unregulated capitalism is failing - because self interest includes immorality and complete and utter disdain for your fellow man. The greed that drives the success of capitalism also sows the seeds of its destruction. Maturity and being an adult seems long gone from our childish, impulsive and materialistic ruling class and culture.

    Posted by OneVote at 03/23/2009 @ 7:29pm

32. Maturity and being an adult seems long gone from our childish, impulsive and materialistic ruling class and culture. Posted by OneVote at 03/23/2009 @ 7:29pm

    Well thank you for your thoughtful post, a piece actually stating an opinion, citing facts, and absent the pissing contest mentality that so often keeps me off of this site.

    Posted by theo51 at 03/23/2009 @ 7:42pm

33. I had to nearly memorize the Glass Steagall act of 1932-33 for my accounting class. Apparently this act was almost as important as the constitution to some economists. I still don't know why 90 Senators voted for the Gramm-Leach-Bliley Act 1999 and why old rising tides Clinton signed it. Geithner seems to know where all the bodies are buried, but I don't know about Summers.That Harvard crowd scares the bejesus out of me. I'm beginning to feel that there was a Blumberg, behind closed door, agreement to all this crap. Remermber that AIG, CITI etc... are global multi nationals and the Chinese want their pound of flesh, as do the Brits, The Europeans and on and on..... Lack of capital flow is a diversion for the fact that we don't have the income to warrant borrowing. No job no borrowing, no consumption no producing. Here is the ugly fact, Americans are tapped out. First we put our wives to work, then we maxed out our savings, then we maxed out the credit cards then we borrowed on our homes . here is another ugly little fact that the poor never hired a person for a job. We the dirty finger nail, dead enders and losers kept every one afloat and they left us to wade chest deep in sewage. I think Obama gets it, but he is a a layer not an economist. I think his advisers are old school and not really aware.

    Posted by julien38 at 03/23/2009 @ 8:00pm

34. Krugman is dead on.

    Posted by julien38 at 03/23/2009 @ 8:02pm

35. You're on a roll tonight, Owe Vee!

    What's been on my mind of late... is the underlying ethos of capitalistic behavior... in that the tendency across our society right now is a rather guilt stricken lot... with the 'I'm not good enough I guess' mentality coming from hundreds of millions of individuals... none of whom caused or benefitted from the upper echelon feeding frenzy in any way...

    ...and because we are... each of us... 'atomized' individualistic units and 'on our own' so to speak... we have very little compunction to actually believe or behave as if we 'know' that we are all in this together...

    But we are.

    And why is it that we are the ones who must stand at the end of the assistance queue... way behind the banks, big business and the corporations?

    Maybe its because "We the People" need to remind Congress that they are our hired lobbyists first and foremost... and we've needed a bailout for a long time, thanks to them... See, the thing is... and this is the crux of America's dilemma... most of us despise being 'charity cases'... especially those many hundreds of thousands of us that feel best when our shoulder is 'to the wheel' doing the good work that makes our world more local and sustainable... more friendly and more helpful... more self reliant and more giving...

    Shipping jobs overseas is hard on us...

    Posted by ttr at 03/23/2009 @ 8:13pm

36. See, the thing is... and this is the crux of America's dilemma... most of us despise being 'charity cases'... especially those many hundreds of thousands of us that feel best when our shoulder is 'to the wheel' doing the good work that makes our world more local and sustainable... more friendly and more helpful... more self reliant and more giving...

    Posted by ttr at 03/23/2009 @ 8:13pm | ignore this person | warn this person

    This is my belief as well. I would like my taxes to contribute to the true common good, and I would be ashamed to feeding off the public, especially if I engaged in behavior that I knew was risky (or fraudulent), and calculated for solely for my personal profit.

    Driving around town the other day, I just could not believe the deteriorating condition of the roads. Potholes everywhere. Where has all the money gone? What is going on? We are building roads in Afghanistan and not maintaining our own? There is a disconnect of priority of "we the people."

    We are in this together. Most of us know this, but are isolated from true community. We are not islands, and we need society and community, and are enriched by it. Television has become a substitute for community.

    Washington DC has become a world unto itself. The perils of corrupt federalism warned about by our founding fathers. Most of us are good in nature. Some of us are decidely not. Power and money are powerful attractants to those who are not.

    Posted by OneVote at 03/23/2009 @ 8:51pm

37. Comanche-

    What is your plan?

    Posted by dekist at 03/23/2009 @ 8:55pm

38. Cause it sounds like failure of anything other than what you think is best is your greatest hope...sad and dangerous...suggest something...besides liberals are brainwashed, stupid, etc.

    Posted by dekist at 03/23/2009 @ 9:04pm

39. This answer in fact is terrible...the steaming pile it's meant to address is terrible...the lumping of other expenditures that are desperately needed is disingenuous and ignorant...the system is broken and needs fixing, so please...enlighten me...

    Posted by dekist at 03/23/2009 @ 9:14pm

40. The left will soon find that rather than P.C. outrage over their ignorance of word meaning and derivation the rediscovery of the term "niggardly" will become very CLEAR to them!

    Posted by comancheamerican at 03/23/2009 @ 6:45pm

    rio, rio, rio.

    left? right?

    por favor.

    Posted by frosty zoom at 03/23/2009 @ 9:41pm

41. A little addition to the "why so much greed" question discussed by One Vote and others above. Several years ago I read about a study done in Europe (at Tinbergen, I think). It measured (or purported to) the susceptibility of students to temptation of an economic sort. The upshot was that the economics/business students were significantly more prone to corruption than any other major (sciences, humanities, other social sciences). The hypothesis was that the economics/business students had been taught that being greedy was moral or socially desirable behavior. The caveat was that people who thought that already may have self-selected as economics majors.

    Posted by cdlepthien at 03/24/2009 @ 07:13am

42. Posted by cdlepthien at 03/24/2009 @ 07:13am | ignore this person | warn this person

    Tinbergen Institute?

    Fascinating - and kind of scary.

    He is well known for originating the four questions he believed should be asked of any animal behaviour, which were:

    Proximate mechanisms:

    1. Causation (Mechanism): what are the stimuli that elicit the response, and how has it been modified by recent learning? How do behaviour and psyche "function" on the molecular, physiological, neuro-ethological, cognitive and social level, and what do the relations between the levels look like? (compare: Nicolai Hartmann: "The laws about the levels of complexity") 2. Development (Ontogeny): how does the behaviour change with age, and what early experiences are necessary for the behaviour to be shown? Which developmental steps (the ontogenesis follows an "inner plan") and which environmental factors play when / which role? (compare: Recapitulation theory) Ultimate mechanisms:

    3. Evolution (Phylogeny): how does the behaviour compare with similar behaviour in related species, and how might it have arisen through the process of phylogeny? Why did structural associations (behaviour can be seen as a "time space structure") evolve in this manner and not otherwise?* 4. Function (Adaptation): how does the behaviour impact on the animal's chances of survival and reproduction? In ethology and sociobiology causation and ontogeny are summarized as the "proximate mechanisms" and adaptation and phylogeny as the "ultimate mechanisms". They are still considered as the cornerstone of modern ethology, sociobiology and transdisciplinarity in Human Sciences.

    References concerning the four questions:

    Source: Wikipedia, Nikolass Tinbergen

    Posted by OneVote at 03/24/2009 @ 08:35am