March 23, 2009
I’ve been reading quite a bit (although perhaps not enough) about the administration’s plan to bail out the banks by buying up bad (or “legacy,” as they’re calling them) assets, and I can conclude two things:
1. There are a lot of people out there with VERY strong opinions on this.
2. Unless you are an economist or have an unusually strong grasp of economics, if you have a strong opinion on this (e.g., you think the plan is complete idiocy, or you think that it will certainly work), you are fooling yourself. You really have no idea what you’re talking about.
First, if you are some sort of super-partisan and are trying to figure out where you are ‘supposed’ to be on this one, good luck to you. There are strong Geithner critics on both the left and the right (there’s apparently no shortage), and there are likewise supporters of this plan on the right and left.
Second, if you think that there’s some obvious flaw to this plan, or that it’s obviously unnecessary or wasteful or disingenuous or ill-conceived, you’re wrong. There are some incredibly smart voices on both sides of the debate on this one, and their arguments are both convincing and difficult for the layperson to grasp.
Others have run down the available writings out there to help get a grasp on this issue. I’d recommend Brad DeLong’s Q&A (he’s very supportive of the plan), Paul Krugman (against), Yves Smith, and the Wall Street Journal. As a start.
And if you think, after doing the homework, that you’ve got it all figured out, please enlighten the rest of us, because this whole thing makes me feel like that recurring nightmare I have in which I just showed up at the exam w/o doing any of the classwork. The best I can offer on this one is that I think the plan has a good chance of working, but I’m worried about the fact that the government’s covering so much of the investors’ risks.