Paul Krugman And The Epic of Gilgamesh
Following up on earlier posts by Digby, dday and myself, I'd like to quote from Krugman's short analysis and proposal outline of the Bush financial catastrophe. Not that anyone asked. As mentioned, the Sunday talks hosted not a single economist.
I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets . And if that’s the real plan, Congress has every right to balk.**Krugman is being witty here. He knows the Treasury has every intention to, and will, overpay for assets. The real question facing us is how much will Treasury overpay? My guess: the American taxpayer will be taken for the biggest cleaning since Utnapishtim's Flood.
So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.
It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention ...take the form of public injections of capital, in return for a stake in the upside?
Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem. [Italics in original]
UPDATE: Robert Reich has some proposals that are interesting, and would be doable if political discourse in this country didn't resemble Ebola in terms of how diseased it is. As it is , they have no chance in hell of happening. Here's Reich's proposals, for entertainment purposes only:
1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.
2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?
3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?
4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.
5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?