Michael Bérubé Is Psychic!
Added to the Pile: Animal Spirits, and Who Has the Cure?

Where Is the Paper on the Geithner Plan?

I trust Tim; I think Tim is very smart; I think Tim is very public-spirited; I am sure that he is doing the best he can. That said, I cannot have an informed view of his plan until I see some real pieces of paper about it.

I have thought for a couple of months that the financial recovery package--as opposed to the monetary recovery package and the fiscal recovery package--needs to do three things:

  1. Cap current compensation at $500K a year--any sums in excess must be in the form of ten-year restricted equity investments in the firm, in order to give principals every incentive to make sure the firm still has value a decade hence.
  2. Greatly reduce the amount of risky assets that must be carried by the reduced risk tolerance of the private sector--ideally by fully nationalizing the housing GSEs, and having them borrow at the Treasury rate and buy up and manage mortgages at current market prices.
  3. Recapitalize the banks so that the risk tolerance of the private sector recovers to more normal levels--ideally through something like the Swedish model of temporary nationalization in order to avoid the creation of zombies.

I don't know how close Tim's plan comes to accomplishing the goals that would be accomplished by those three.