Paul Krugman Violates Every Safe Driving Law of New Jersey at Once...

And writes:

Dodd - Paul Krugman: Dodd: Very preliminary, no details — but this sounds like a big step in the right direction.... Very serious stuff — and a major challenge to Paulson’s approach. Treasury should now be required to explain why this isn’t a much, much better way to do this rescue. More when I’m not in a car, almost unable to read my screen.

Maybe Paul has Ascended to the state where "in a car" doesn't mean "driving a car." I've only read through half of the proposed Dodd bill, but I concur: Dodd looks like a plan I can get behind--a serious attempt to solve the problem, preserve accountability, and balance the equities. Too bad he isn't the VP nominee.

Dawn Kopecki and James Rowley of Bloomberg have read the whole thing, and do a good job of summarizing it: http://bloomberg.com/apps/news?pid=20601087&sid=aHeROL9EmlRg&refer=home

Comments

[Jeff]

[[Maybe Paul has Ascended to the state where "in a car" doesn't mean "driving a car." ]]

There are lots of times when I'm "in a car" but not "driving a car." Are you sure that Krugman NEVER has someone else drive while he rides? It seems a bit absurd to believe so.

[MobiusKlein]

You know, taxis are a viable business in large cities like New York.

[naugiedoggie]

Shoot, I send emails with my BB while driving (the Merritt Parkway in CT, even!). I wouldn't be the least surprised if he was even reading the net news on his BB or similar handheld.

Maybe, you have to be an East Coaster, though. "Drive time is work time."

Thanks.

mp

[Walt]

You're never in a car where someone else is driving? Wow, someone has gone California native.

[Tyrone Slothrop]

If Dodd was the VP candidate, he would be busy stumping in Virginia and wouldn't have the time to be legislating answers to the nation's ills.

[Robert Jennings]

I see the market has retraced about three quarters of Friday's gain.... does this mean the SEC is going to make selling stocks illegal ?

[max]

I've only read through half of the proposed Dodd bill, but I concur: Dodd looks like a plan I can get behind--a serious attempt to solve the problem, preserve accountability, and balance the equities. Too bad he isn't the VP nominee.

Well, I've read the Dodd plan and it mostly looks like hopes and wishes; there are enough holes in it to drive a tank division through the middle of it.

The fundamental issue, I think, is that Paulson is trying to do for the banks what would be done under nationalization, without nationalizaing them. Dodd's scheme tries to fix the problem of letting off the banks without seeing the essential point that this is de facto nationalization, so it gets bogged down in unneccessary detail. (In such a way as to render it half unenforceable.) The beaureaucratic structure cuts across lines of authority such as to render the whole thing unworkable.

So I say, if we're going to get 75% of the way to nationalizing the banks, we just go whole hog and take advantage of the situation full nationalization would give us.

That is, we set up a committee of five people to supervise the mess, with three of them appointed by Democrats and the other two being Benanke and Paulson. The committee has to report to Congress every week.

The committee issues T-bills at equivalent face value in a one to one trade for stock shares. (100$ of stock gets 100$ (face) of T-Bills.) They also get a ticket that allows the shareholder to swap the T-bills (at face value) for stock shares of the denationalized companies. The price would bet for last Friday's closing, which is an above market price, since that's the proice of the shares given the cost of the bailout. The Treasury doesn't have to raise cash to do it this way.

One the banks are nationalized, we use the bank employees themselves to continue the day-to-day operations of the banks, while getting a through and accurate accounting. That is, we rectify the books. Bernanke can direct operations (like he doesn't do this in a sense anyways) and ensure short-term lending resumes.

USG takes possesssion of the bad mortgages, and the bad paper (and hopefully, much of it can simply be burned), and once those items are off the books, and the mortgages pooled and cleaned up, we inject cash into the banks and simply denationalize them, without getting all punitive. That should take maybe 120 days, because we are not trying to get accurate market valuations of bad mortgages, and so on, we're just cleaning out the cruft and making the bank books good so they can go on functioning as banks. (Since our interest here is not in individual bankers, it is entirely in saving the institutions, so that the financial system keeps working.)

After that's done, the messy work of dealing with the bad paper or renegotiating the mortgages can be dealt with. (And that also buys time for Congress to figure out HOW they want to handle the disposition of the mortgages.)

If we do it that way, we can do it in a hurry, with a bill that's maybe 10 pages long, without simply tossing money at the bankers.

max
['There is enough money in these bills to buy the banks outright, so why reant when you can BUY?']

[Ben V-L]

I think I would like Senate Majority Leader Dodd more than Vice President Dodd.

[Leila Abu-Saba]

The Town Car is a form of private taxi so ubiquitous as to be a rather accessible perk in New York. When I was a lowly temp in the 80s we all got Town Cars with reading lamps in the back for rides home after 8 pm. Somebody got viciously mugged one night, hence the rule - town cars for all typists. My friend's father, an uber-Wasp (in the Social Register), had a Town Car account and usually got the same driver when he telephoned. It's more efficient than keeping your own limo, so plutocrats with sense use them, as opposed to nouveau riche hedge fund traders.

Sony vice presidents, lawyers - all kinds of people in New York ride around in Town Cars summoned by telephone. It's deductible if it's for work and it's easier than driving your own and parking. Whether Krugman pays for his own Town Car or lets the Times or Princeton do it is between himself and his accountant, I would think...

[capatalistpig]

To anyone who has read The Liberal Hour by John Kenneth Galbraith, in particular the chapter “Care and Prevention of Disaster”, or otherwise studied the 1920 presidencies of Harding, Coolidge, and Hoover; the Bush years are eerily reminiscent of the events that lead up to The Great Depression. The missing ingredient in the 1920’s was Greenspan and lobbyists.

[Esoth]

Krugman Car-Blogging! positively absolutely.

[ogmb]

CNBC report Paulson says No Deal to debt-for-equity.

[bob h]

Presumably the equity stake is returned to the bank to a degree determined by the ultimate losses on sales of the toxic assets?

[Matt]

Dodd's plan, like Paulson's, would likely not result in injecting meaningful capital into banks. In a likely sheme, under either plan, the Treasury would offer to take toxic assets off bank balance sheets at a price to be determined at auction. Unless the resulting auction price is higher than bank's current marks, no capital is injected. In fact, if it turns out to be lower than current marks, even non-participating institutions could be forced to make further write-downs. That could lead to further financial institution failures. You can reliably inject capital into banks in two ways. One is by paying more for toxic assets than they are currently worth. The other is by making a direct equity investment in banks. More generally, both plans appear based on the premise that what we mainly have is a liquidity problem, not a solvency problem. Right now, toxic assets aren't trading, so that current marks should involve a steep liquidity discount. When price discovery is re-established via the auction, prics should then rise, and the banks will be better off than before. But there is a risk that price discovery will reveal that things are even worse than we thought, or that banks still haven't taken sufficient write-downs. Until there is some backstop facility to deal with that downside risk, I'll remain worried.

[Robert Waldmann]

Brad you have finally and utterly 100% lost touch with your green roots (not a mixed metaphor orchids have green roots). When you hear a suggestion that someone is a car, but not driving you think "Chauffeur" not "car pool".

Maybe it just wasn't Prof. Krugman's turn to drive today (yeah I know Princeton profs are more likely to fly pigs to work than to carpool).

I have only totally (but not utterly and 100%) lost touch. I thought "taxi".

Or else maybe he was driving in which case I'm glad I was driving in Rome where it is safe and not in New Jersey.

[Julian Elson]

I was imagining that maybe Robin Wells and Paul Krugman were driving somewhere together, and that maybe she was doing the driving at the time.

I dunno.

[Delicious Pundit]

You have time to be blogging in New Jersey during those times when the highway's jammed with broken heroes on a last-chance power drive.

[k8gaetano]

As someone who's spent a lifetime jumping to conclusions, it takes chutzpah to accuse others of it, BUT....here's a possible explanation for Prof K's post. His wife works at the same university as he does. Perhaps she was driving. As green-minded Americans, it's likely they car-pool.

[domino]

Brad, I can see you've already copped it for this comment, which I took to be a friendly joke. But I'm adding to it anyway...

I don't know about NJ, but where I come from alcohol and speed limits are driving safety laws as well. Perhaps you're implying that Paul is going too fast in his judgments because he's drunk while he sends emails and drives?

But what about indicating to change lanes, did he violate that law as well? Not sure how you can tell that he wasn't wearing his seatbelt, but based on his record I think its safe to assume that he had limbs out the window.

I think its clear from the way he says "almost unable to read the screen" that he isn't wearing his glasses, but I can't see evidence that his brakelights are failing or that he failed to stop at a stop sign while overtaking on the inside .

Just saying ;)

[Walt French]

I don't understand why the language doesn't require CEOs' Sarbanne-Oxley class attestations that the assets are being assumed by Treasury at a price no lower than current market conditions would allow (to have each damn one labeled "BAILOUT" once the squabbling starts hours after inception) and a similar attestation that all the risk characteristics and supplementary firm accounting covering ALL related funds (e.g., conduits; SIVs) has been supplied about to allow the Secretary to assess the need and risk of each purchase.

And I guess I don't read bills very much, but do laws directing a Dept to do X usually name the Secretary? Since they can be removed by the President in a Saturday Nite Massacre, why not just say, the President or Constitutional (confirmed) designee? If Paulson gets sick of the whole enterprise after two weeks and resigns, wouldn't we want the program to founder based on the talent of whoever is #2 at Treasury.