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Krugman on Toxic Assets Plan: 'What an Awful Mess'

By Harry Kimball,  Newser Staff

Posted Mar 21, 2009 11:51 AM CDT
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(Newser) – 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.”

Treasury Secretary Timothy Geithner.
Treasury Secretary Timothy Geithner.   (AP Photo)
Treasury Secretary Timothy Geithner looks on as President Barack Obama makes remarks on AIG.
Treasury Secretary Timothy Geithner looks on as President Barack Obama makes remarks on AIG.   (AP Photo)
Treasury Secretary Timothy Geithner looks oas President Barack Obama makes remarks on AIG Wednesday.
Treasury Secretary Timothy Geithner looks oas President Barack Obama makes remarks on AIG Wednesday.   (AP Photo/Ron Edmonds)
President Barack Obama meets with Treasury Secretary Timothy Geithner, Wednesday, March 11, 2009, in the Oval Office.
President Barack Obama meets with Treasury Secretary Timothy Geithner, Wednesday, March 11, 2009, in the Oval Office.   (AP Photo/Gerald Herbert)
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In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities.
- Paul Krugman

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COMMENTS
Showing 3 of 3 comments
Toon
Mar 21, 2009 10:56 AM CDT
Are you aware that blue states pay more to the federal government than they get back? And that red states pay less than they get back? Yet the ones who benefit most also bitch most.
BackAgain
Mar 21, 2009 10:01 AM CDT
This is nuts. The businesses that have these assets should eat them. If I could get away with it like the Dems I would not pay my taxes anymore.
Derni
Mar 21, 2009 9:52 AM CDT
But remember-we would not be the first contry to ever do this-so how did it fair in other countries?

Plan relies heavily on private investors
New York Times

 
recession • Treasury Department • Paul Krugman • private investors • Obama administration • Timothy Geithner • TARP • toxic assets

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