The Obama administration’s new plan for dealing with toxic bank assets is “creating massive moral hazard,” Paul Krugman blogs in the New York Times. The idea of providing taxpayer money to insure the purchase of possibly worthless assets is equivalent to the poor practices laid bare in the Savings & Loan scandal of the 1980s. “This is an open invitation to play heads I win, tails the taxpayers lose,” Krugman writes. "The zombie ideas have won."
“If we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved,” the government thinking goes. But the investors are thinking something different, Krugman writes: “The stuff might be worth something; and if it isn’t, that’s someone else’s problem.” Supposedly, fair prices will out because of competitive bidding, but really it’s “an awful mess.”