I feel shy about quoting too much of what I have published in "The Week" here--Frank Wilkinson is paying me good money (well, not "good" money: hand-signed checks on the Nation payscale is what we are talking about here) to drive traffic to http://theweek.com/. But I will quote Matthew Yglesias quoting me:
Matthew Yglesias: Brad DeLong’s Case for the Geithner Plan: What exactly it means to be “for” the Geithner Plan is, at this point, a bit hard to say since nobody seems to think it’s adequate to the problems we face, but among those who clearly think it’s desirable for the plan to go forward as one step among many, Brad DeLong has been the most convincing non-administration defender. Read this extended remix to get a clear since of what an optimistic take on the plan would be. And whether or not you find that convincing, I at least find this to be almost certainly right:
Q: But if even the Obama administration thinks this plan will accomplish only 3/4 of the job, why aren’t they doing more? Why not do the entire job?
A: Republican Senator George Voinovich of Ohio is the sixtieth vote in the Senate–the one required to close off debate, avoid a filibuster and move to a vote on final passage of a bill. If the Obama administration wants to do anything that requires legislative action, it needs Voinovich and 59 other senators on board. The White House’s legislative tacticians appear to think that 60 senators are not on board–especially after last week’s AIG scandal. The Geithner Plan is something the administration can do on authority it already has. Doing more would require a congressional coalition that, at present, does not exist.
Another way of looking at it is that the administration has a real-but-limited ability to ask members to cast tough votes they don’t necessarily want to cast. Doing something they can do without an additional vote makes it more likely that they can ask congress to cast those tough votes on the budget and on health care rather than on bank bailouts.
And commenter Kafka writes:
Why Wall Street loves Geithner and his bank bailout plan: FROM: http://www.forbes.com/2009/03/25/geithner-mortgages-banks-intelligent-investing-bailout.html. Money quote:
Now we have the plan: It’s similar to former Secretary Hank Paulson’s plan to buy toxic assets from bank balance sheets but with a twist–the Federal Deposit Insurance Co. and Federal Reserve will give private investors cheap leverage. For private investors like PIMCO, this means they’ll be able to enhance potential returns with government leverage. It also means, since the government will be granting them non-recourse loans, that if these securities ultimately fall in value, the private investors are protected–they can hand the securities back to the government and walk away.
To which I reply:
Since most of these troubled assets are held by banks, the FDIC has already effectively given them non-recourse loans–if the value of the troubled assets in the end doesn’t cover the value of bank deposits, the bank shareholders walk away and the FDIC ponies up. I don’t understand how moving these FDIC commitments out of the banks and into these Treasury-sponsored funds changes anything.