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WEDNESDAY, NOVEMBER 25, 2009
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 OPINION 
12

Don't Listen to Krugman— This Plan Might Work

Pearlstein lays into fellow columnist

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(Newser) – Even before the full details were released, critics were bashing the Treasury's public-private asset purchase plan; Paul Krugman predicted it would fail and lead the country into depression (not to speak of the writer into despair). Steven Pearlstein begs to differ, and the markets seem to agree. For the Washington Post columnist, the Geithner plan is better than nationalization: There's now "a good chance of bringing significant amounts of private capital back into the financial system."

It's fair to say that the government is shouldering most of the downside risk—but Washington had to in order to lure spooked investors at all. With added liquidity we should see that asset-backed securities aren't worthless, and even for those that are, "nationalization doesn't make the bad loans go away." And if nothing else, at least "the conversation has turned from AIG bonuses to the question of how to revive the global financial system."

Paul Krugman, Princeton University professor of economics and international affairs, after he was announced the winner of the 2008 Nobel Prize in economics Monday, Oct. 13, 2008.
Paul Krugman, Princeton University professor of economics and international affairs, after he was announced the winner of the 2008 Nobel Prize in economics Monday, Oct. 13, 2008.   (AP Photo/Mel Evans)
Tim Geithner, Barack Obama, Ben Bernanke and Sheila Bair at the White House yesterday, after Geithner announced the Treasury's public-private asset purchase plan.
Tim Geithner, Barack Obama, Ben Bernanke and Sheila Bair at the White House yesterday, after Geithner announced the Treasury's public-private asset purchase plan.   (AP Photo/Gerald Herbert)
A trader works in the S&P 500 futures pit at the CME Group Tuesday, March 10, 2009, in Chicago.
A trader works in the S&P 500 futures pit at the CME Group Tuesday, March 10, 2009, in Chicago.   (AP Photo/Kiichiro Sato)
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One can quibble that the proposed deals are too sweet or not sweet enough, but I can assure you that the folks at Treasury, having consulted widely with investors, have a better feel for those details than even the most sagacious newspaper columnists. -

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12 comments
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Derni
Mar 24, 09 8:38 AM CDT
Well stated-and so far-true. Reply
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Toon
Mar 24, 09 8:41 AM CDT
What's good for Wall St. isn't necessarily good for the nation. After the last few years, endorsement by stock traders rings rather hollow. I want Krugman to be wrong, but he has been right pretty consistently in the past. Reply
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IN RESPONSE:
Robert_Dada
Mar 24, 09 9:20 AM CDT
You are so right
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IN RESPONSE:
woody66
Mar 24, 09 10:18 AM CDT
The private investors will share the first 15% of downside risk so they will have skin in the game. They will be the ones to properly value the assets which is the aim here. Krugman seems to prefer full nationalization of these banks. It's a feasible option but would there be broad support ?
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IN RESPONSE:
Snowleopard
Mar 24, 09 3:10 PM CDT
private investors only have to pay half of the first 15%. That's only a 7% downside. What a gift.
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