Geithner's Bank Plan... Or Lack Thereof?

A lot of debate on the blogosphere about the bank plan (or bank "plan") that Timothy Geithner rolled out. I'm giving the benefit of the doubt to the Administration. Mainly, it seems to me the hesitation of the Administration is belied by the debate between a "solvency crisis" and a "liquidity crisis," and how much of the banks fall into one or the other.

It's unfortunate, however, that Geithner didn't present that honestly and forthrightly, in a way that could still give some confidence to investors. Presenting both possibilities, for instance. Giving a window into their thought process. Leaving us in the cold, playing Treasury-ology, is not very productive. I have faith, as other bloggers do, that Obama and Geithner are privately contemplating nationalization in some places, recapitalization in other places (after all--banks that bust get nationalized whether we want to or not). But the strategy, the philosophy, is unclear.

A Note On Economic Recovery And Theater

Isaac Butler (Parabasis) notes the role that the Federal Theater Project played in Federal Project Number One, the arts initiative.

The justification at the time, as I've mentioned before, is that when artists can be gainfully employed as artists, they don't take the jobs of unskilled laborers, and thus jobs are created.

Economics: Response to Paul Krugman

I was reading an old article by Paul Krugman (the NYTimes Economist who won the Nobel Prize this year) which was his rebuke to the Austrian Theory on the inevitability of recessions after investment booms. The Article was written in 1998 in response to the Asian Market meltdown, and basically says that commentators who were blaming the freezing of the Asian Market on the Asian bubble bursting in the 1980s are just jumping to false conclusions.

Here's the point on which he faults the necessity of a recession after an investment boom:

"Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?" (emphasis mine).

So my question is, is he correct in his assertion that spending = income? Does his assumption mean that people who take their income from wages and save it in a bank get siphoned back into the investment market?

I think I disagree with his assertion that recessions are absolutely avoidable in the wake of a stock-bubble bursting, but I agree with his criticism of people who use the Austrian Theory to make an argument for the futility of government intervention are also incorrect. I mean, the reason in my mind that a stock-bubble bursting tends to lead to a recession because of the damage in consumer confidence, and the increased need for savings.

I mean, say the investment bubble bursts and loans become harder to secure. People's first impulses will (or ought to be) that they need to save more, because of all the uncertainty they see around them. So, while from a pure economics standpoint, I agree with Krugman that there's no reason why production capacity and consumption capacity would be affected by investments tumbling (although companies that rely on debt spending will be damaged), I don't think I agree with him that the rest of the market can be insulated from an investment collapse; certainly not one on the scale of what we're seeing now.

I mean, I guess I should cut Krugman some slack because he was responding to the Asian market bursting rather than the current financial tsunami, but since he was making a generalized claim, I think it's fair.

I'd also like to point out that Paul Krugman has won a Nobel Prize in Economics. I have read Freakonomics. I do not claim to be any sort of an authority.

Conversationalism + 2008: On The Street Where You Live

Yet even as we speak, there are those who are preparing to divide us, the spin masters and negative ad peddlers who embrace the politics of anything goes. Well, I say to them tonight, there's not a liberal America and a conservative America - there's the United States of America. There's not a black America and white America and Latino America and Asian America; there's the United States of America. The pundits like to slice-and-dice our country into Red States and Blue States; Red States for Republicans, Blue States for Democrats. But I've got news for them, too. We worship an awesome God in the Blue States, and we don't like federal agents poking around our libraries in the Red States. We coach Little League in the Blue States and have gay friends in the Red States. There are patriots who opposed the war in Iraq and patriots who supported it. We are one people, all of us pledging allegiance to the stars and stripes, all of us defending the United States of America.

This is the paragraph, in 2004, that turned me into an ardent Barack Obama supporter. It was a promise that there was an idea of America separate from party politics. And a rejection of the cutting and dicing of America. It contrasted sharply with another political candidate of the time:

Today, under George W. Bush, there are two Americas, not one: One America that does the work, another that reaps the reward. One America that pays the taxes, another America that gets the tax breaks. One America - middle-class America - whose needs Washington has long forgotten, another America - narrow-interest America - whose every wish is Washington's command. One America that is struggling to get by, another America that can buy anything it wants, even a Congress and a president.

This is an older meme, but it gained equal traction when John Edwards deployed in 2004. Like the Obama view of America, it unites people regardless of ideology--but unlike Obama, it still creates a huge division in America. The "narrow-interest" America versus the "middle-class" America. It harkens back to How The Other Half Lives. But it's still a politics of division. A politics of the enemy. The rich, entitled (bourgeois?) versus the everyday, ethical man.

In 2008, it reared its head again not just in the visage of John Edwards (still under the Two Americas name), but under Mike Huckabee:

I'm not a Wall Street Republican, I'm a Main Street Republican.

Perhaps a testament to the lasting influence of Huckabee is that now, during this economic crisis, you literally cannot open your mouth to talk about the bailout plan without saying the phrase "It has to work for Main Street, not just for Wall Street."

Even Barack Obama has been using this phrase, which makes me sad. What happened to "These United States of America?" Certainly, it hasn't been visible in Nancy Pelosi's "leadership," which most recently consisted of blaming House Republicans for this mess. That doesn't mean that House Republicans don't share the blame--the point is that we're not even talking about the issues, the solutions, or reality.

Instead, we're trumping up this economic division. Is everyone in the financial industry evil? Maybe the CEOs and the Investment Branches. But I have several close friends who work as bank tellers. You know who suffers if Washington Mutual or Wachovia branches close? They do. I agree that there have to be strings attached, etc. etc., but if we start employing the language of a culture war, we start setting our priorities incorrectly: our priority is not to punish the financial industry, or to find blame. Our priority is to straighten out the markets.

We can start creating accountability, rewriting the legislations, straightening things out after we've guaranteed that our inaction hasn't caused a 700 point in the DOW Jones. Just to reiterate: the stock market is not just for rich speculators: people have their savings there. Banks are not just for rich speculators: people have their savings in there.

Notice: when Americans are asked how they feel about the bailout, they react strongly against it. When they are asked how they feel about a rescue package that has exactly the same terms as the bailout but isn't called a bailout, they react strongly in favor.

And what this really boils down to is: why are we using any of the language of politics right now? Why are we debating "Wall Street" and "Main Street"? In fact, why are our Congresspeople publicly debating the Bailout package? They should be in meetings, privately debating the bailout package. This is the moment for Congress to quickly and quietly get to its work.

I don't mean that it should be secret--Congresspeople should keep the American public informed as to how the package is going, and once an agreement has been reached, it should be presented to the public. All I'm saying is that trying to play the political game at the same time as the statesman game is going to hold us back.

All I can do is remind you: we have no red states, or blue states: only these United States. There isn't a Rich Person's Economy and a Poor Person's Economy: there's the World Economy. When you find it more important to debate whether the free market solves everything, or to vilify the very House Republicans whose support you need to pass this bill, not only are you watching the US market decline, but the Eastern market, the European markets. Everyone hurts.