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Bailout Update

Friday, September 26, 2008

Paul Krugman, columnist for the New York Times, and professor of economics and international affairs at Princeton, gives us his take on the latest bail out news.

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Paul Krugman

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Comments [94]

audrey from west orange, nj

Ok we get Mccain you never cared and never will voting for you is like voting for a monkey with a high school education your so far out of the reality that you dont even undertsand or what your gonna do you are not prepared

Oct. 07 2008 08:51 AM
Rayna from Ossining, NY

I keep hearing that shareholders are also going to be 'punished' and my question is, Why? What did shareholders do that angers 'Main Street'? I for one own AIG and have seen my investment decrease substantially - how much more punishment before it becomes 'cruel and unusual'?

Sep. 29 2008 11:11 AM
Karen from Orangeburg, NY

Why are we still thinking with the Reagan era philosophy of trickle down economics. Throwing billions down bottomless holes with vague accounting and oversight, and even more vague targets and programs, is a recipe for disaster. Giving more money to the very people whose poor judgement was the cause of this house of cards is not going to yield a different outcome.

There is nothing better for the economy than keeping people from losing their homes and rewriting those bad mortgage rates with the floating interest rates, through the bankruptcy courts, making sure the income is there, and then allowing people to pay their bills. As it is now, too many are one step from the streeets. This solution will not prop up an economy which is based on consumer spending.

This is a bad solution and should not be passed.

And why isn't anyone looking at McCain's connection to Charles Keating and the last banking scandal?

Sep. 29 2008 10:48 AM
brian jones from Brooklyn

I am shocked and dismayed that during this whole crisis. No one has chosen to "STOP THE MUSIC". We need to find out who has what securities FIRST. Then we can go in and begin (as Taxpayers) to provide assistance. Transparency First then Assistance. Not the other way around.

Sep. 29 2008 10:40 AM
ADAM DAVIDSON DOESNT UNDERSTAND

Adam Davidson needs to get his ducks in order and understand EVERYTHING before you invite him again as your expert.

Given that the central problem here is that money was made on instruments that are incomprehensible BECAUSE THEY MAKE NO SENSE(derivates etc.) and cannot be valued, it is critical that he distinguish what he doesn't understand b/c of his lack of education/knowledge/experience, and what he doesn't understand b/c it makes no sense.

Sep. 29 2008 10:22 AM
Rowan from Brooklyn

- Monday Morning -

1. Historically, governments have been incapable of "buying" short term confidence. Interest rates of less than 1% in Japan for years and still companies and consumers would not borrow. Confidence typically takes 2-4 years to recover.

2. Round II will start amd the "Main St." troubles commence in a few weeks time as short term (30-180 days) business and coporate loans fall due and banks either refuse to renew or renew at 30-50% lower levels. Ths will trigger corporate failures. The $700b package will have no effect on this. Remember, the outlook for existing loans' security realisable value is extremely poor.

I was head of credit risk for an investment bank in 1987 and the fundamental issue of excessive lending against unrealised asset values is identical.

Sep. 29 2008 08:45 AM
Eleni from NYC

This is just more evidence that both the Repubs. and Dems. are in co-conspirators in some agenda they have had all along. Remember the late 1980's when Japan was on top of the hill--because the US put it there. They invested in the US they demanded lopsided trading practices. In fact they invested alot of money in the US. Then one nice day, we collapsed the market --does "Black Monday" 1987 ring a bell. I know it was only on paper. But we destroyd the JApanese market putting them in flux. The Europeans and the Arab Emirates have done the same.Tthey forgot too it seems. We encouraged them to invest money, buy properties. Then we collapsed the market and only bail out the US biggies. Everyone including Americans are trapped on the USS Titanic and she 's going down fast.
Stay tuned for another episode of:US Govt't BAil Out or
"THE USS TITANIC is Sinking!!!--gee,... I wonder where all this water is coming from????

Sep. 28 2008 11:10 PM
Jack from New Hyde Park, NY

The way I see this mess we're in is pretty simple. House prices went up too quickly, salaries have not kept up, (nor did household goods in general). The only area that has gone up at the same rate as housing is medical.
During the fifties generally one person needed to work to support a family. Then in the 70's two people needed to work to support a family in a house. Now most of us who bought houses in the 70's could never afford to buy them now. Especially if we would be subjected to the same rigorous lending standards that existed then. So one of two things has to happen, housing cost have to come down or salaries must go up. The latter is not going t happen any time soon, so the former must occur.

Sep. 28 2008 06:10 PM
Kevin Mac from Merrick

Jeni from Manhattan....it is simple, lenders were giving away money. They were putting people in homes with no money down, Interest only loans,80/20 piggybacks,stated deals etc...it was 100% greed driven along with an initiative that started back in 1999 in the Clinton Administration for affordable housing and products to enable it. It was a house of cards from the get go and everyone involved went for the quick money in origination fees and servicing fees knowing damn well how risky it was. I like to equate it to a game of musical chairs where there 15 players and when the music stopped there were only 2 chairs.

Sep. 26 2008 09:57 PM
jenl from manhattan

I am sorry but I was very disappointed in Mr. Krugman's answer to my question above. Has he forgotten how the housing start data was eagerly watched by the markets and any quarter where there was a decline in new home construction the market would shudder? Or how inflated home values were a primary driver in giving consumers confidence to spend (because they felt their homes were worth so much), thereby bolstering profits in the retail sector? I don't even own a home, but my family benefitted as well because my corporate clients were profitting from all the consumer spending that was going on. Now it seems clear that the availability of all this cheap money was what was priming the pump.

It is not clear to me how bundling all of these sub-prime mortgages together has escalated the problem, and why the people who thought to do so were simply "greedy." I was also very surprised to hear Mr. Krugman refer to Wall Street as "wheeler-dealers." I expected a more thoughtful answer.

Sep. 26 2008 02:59 PM
eva

mc,
welcome back, I hope the surgery wasn't serious, and that you're having a speedy recovery.
you asked what's been happening? It appears we've enlarged the federal deficit significantly over the past three weeks.
And Paul O'Neill and Gretchen Morgenson, the only people I trust in this regard anymore, say that there is absolutely no rush for us to shell out 700 billion to Wall Street. We need to take the time to find out HOW they are going to evaluate the assets they say they need the money for.
As Gretchen M. says, "if it's only fifteen cents on the dollar, then that's what we pay, but not a penny more than what it's worth." A big part of the problem is figuring out what it is worth. NYTimes story on that ran yesterday online, retrievable.
Feel better soon.

Sep. 26 2008 12:30 PM
eva

financial crisis from the perspective of Heath Ledger's Joker, costarring W, courtesy Andrew Sullivan

http://www.youtube.com/watch?v=R1X6RQLZtoA&eurl=http://andrewsullivan.theatlantic.com/

Sep. 26 2008 12:19 PM
Karen from Manhattan

I meant "cash infusion." Pretty funny, though -- a real Freudian slip.

Sep. 26 2008 11:40 AM
Karen from Manhattan

I'm with Ian Hughes, above, and the O'Neill plan. Krugman's answer was that the plan would be difficult to implement because the homes, and hence the amount of insurance necessary to securitize mortgages would be hard to value. He also was concerned about providing the market with a class infusion.

But if the federal government is going to value the loans and securities -- i.e., the mortgages -- in order to buy those bad assets from the banks and, the government hopes, resell them when the smoke clears, why can't the government value the same assets in order to securitize them? What's the difference?

Can someone explain this to me? It seems also that if there is no risk of default, the market will unfreeze and there will be no need for a 700 billion dollar cash infusion.

Sep. 26 2008 11:34 AM
jawbone from Parsippany, NJ

The Paulson Plan? "PLAN"??? I call it the Paulson Fix (Is In). A wealth transfer from the unwealthy to the uberwealthy.

Why $700 Billion? Per Forbes:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

Truth from an anonymous source? Good reporting--or just a joking statement treated as serious? It's sometimes hard to tell with our MCM (Mainstream Corporate Media), but one hopes something this serious is being reported seriously and honestly.

No bolding here, so I'll repeat what was reported in caps:

"IT'S NOT BASED ON ANY PARTICULAR DATE POINT.

WE JUST WANTED TO CHOOSE A REALLY LARGE NUMBER."

http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

Sep. 26 2008 11:28 AM
barry from Manhattan

Never!
I think it is Politics of opportunity.
McCain is way more willing to take big chances to try to take away the win.
Obama is in reaction mode. Which is probably correct since he has the edge.
The Daily show wants it both ways, but I think they reflect a lot of the coverage of McCains move.
While it was political, McCain grandstanded for the same reasons being articulated by many in congress...the whole thing is moving to fast and it stinks.
On the Cynical Scale I give it a 7

Sep. 26 2008 11:07 AM
Bob Didner from Morristown, NJ

Pam from Queens,

Great plan, but you're off by a factor of 1,000. Every 18+ citizen would get $425.

I'll say it for you ... Never Mind.

Sep. 26 2008 11:05 AM
Bob Didner from Morristown, NJ

It seems to me that the basic problem is in the mortgages that have become unaffordable and are thus forced into foreclosure. The banks (and ultimately the bondholders) lose about half the original capital on each foreclosure because of the glut of foreclosed houses causing the price of houses to fall, plus the cost of holding and processing the foreclosed property. The fall in house prices increases the rate of default and foreclosure, with more homeowners walking away from their homes.

The Fed/Bush plan only addresses current defaults and foreclosures This means that in 3 to 6 months the fed will be back for another $700B.

In control theory this situation is called dynamically unstable. In my father's parlance it was called a vicious cycle. The only way to do more than putting a bandaid on this severed limb is to break the cycle at its source, the homeowner. The fed needs to buy the currently toxic securities, but it also needs to renegotiate all of the mortgages at risk so they may be sustained by their mortgagees. The most immediate benefit of this approach is that it will become possible to the put a reasonable value on the underlying collateralized debt obligations, and hasten the feds ability to sell these back into the market. The renegotiated mortgages could be accompanied by an agreement that if the houses in question manage to sell for more than equity in the home, the fed will be repaid up to the amount it invested to acquire the mortgage.

Sep. 26 2008 10:57 AM
Kevin Mulligan from New York, New York

As always, it was a great segment. At the risk of shameless self promotion: I invite everyone to discuss this issue further (all views are welcome) at www.politicalNow.com

As you will see there, and as discussed after your Matt Lauer interview with Bill Clinton soundbit, some conservative posters are claiming that Clinton deserves the blame for this.

What are your views?

Thanks for considering it.

Kevin Mulligan
Founder
www.politicalNow.com

Sep. 26 2008 10:53 AM
Arthur B eLIOT from Floral Pk. NY

NO BAIL OUT! We don't need the current system of growth. Take the money out of the electorial system & open it to more parties.
MR. Meltzer of the Carnegie Mallon group, who appeared on PBS has the solution.
Out law lobiests, put a moritorium on forclousers until the system settles.etc.

Sep. 26 2008 10:50 AM
BORED

The real question is why do the Republican Hate America

Sep. 26 2008 10:46 AM
mc from Brooklyn

Can anyone help me with this? I have just surfaced from major surgery and have missed some news. I understand that there was a meeting in the White House last night of Senate Dems and Repubs and the two major party presidential candidates - and - a "lame duck" representative of the House Repubs who walked out of the meeting. This was followed quickly by an alternative (sort of) proposal by House Repubs. My question: Why were the House Repubs not represented in that meeting? Did they not show up? Were they invited? Can't seem to find good reporting on this.

Sep. 26 2008 10:42 AM
j. wolcott from nyc

Support The People's Bailout:
Instead of giving away $700 billion to corporations for trashy assets for a bailout that might not work, they should instead divide up that $700 billion and give everyone $100,000 (or whatever it would be). That way, people could get out of debt, pay their mortgages, invest in the market, start their own businesses, get a savings account started, etc.

There's no better way to get the economy going again, than to put thousands of dollars in the hands of consumers, right?

If they want instant success with this Bailout idea, they need to make it a People's Bailout.

Sep. 26 2008 10:42 AM
Elsie from Brooklyn

There's a story on the front page of the Metro section in today's NYT about women lined up at the Hermes sample sale. All of the women interviewed worked on Wall St., and many were carrying $8000 designer purses while they discussed their desire to find "bargains" (a $900 pair of leather boots, for example). These are the people we will be helping if this bailout plan goes through. Shallow, unconscionable people who seem entirely unaware and unconcerned with how their actions have affected hard-working people in this country. Any decent person would be mortified to stand on that line, but these women felt no shame, just a degree of low level depression at their own dwindling bank accounts.

We will become moral laughingstocks around the world if these people get taxpayers' money, and frankly we will deserve to be viewed this way.

Sep. 26 2008 10:40 AM
Josh Banks from Brooklyn

To peterson at #5. We did let the market decide and this is what happened. The bailout is corporate welfare. if you want markets o decide, they have. let the companies o bankrupt then. If he government had the same interest over helping people who were in trouble versus their corporate donators, this could have been largely avoided. Thousands of mortgages would not have defaulted and people would no have lost heir houses. The government has acually passed legislaion making it more difficult for people to declare bankruptcy, but yet we give out $85 billion to failed "market acions" without a thought. Now you say we don't ned regulations? Who got screwed here?

Sep. 26 2008 10:38 AM
Ari from New jersey

I can not seem to grasp the concept that our government seems to hold on to. The partisan politics has to put aside in this case and the good of the country should take lead in the current situation that we are facing. As usual our officials bark the same retoric adn nothing is done. Does this mean as a country citizens ahould join together and even go as far as boycoting thr election to get a point across. The safety and success of our country seems to reley on a washington that is more concerned with party lines than with the fact that we are in turmoil. Are the officials in washington bordering "treason" agaist the citizens and country that they are supposed to protect. All I see day to day is Republican this, Democrat that, that should no longer be important, yes Congress had to set a deadline of today, friday, because of the importance to take off head home and protect their postion in their respetive districts. Its that what has become important, a political postion and not the fact that these officals are working for us. What is going on in Washington????

Sep. 26 2008 10:33 AM
Voter from Brooklyn

I keep hearing of this fear of socialism… If everyone fears socialism, here’s what we should do:
Dissolve Social Security, Medicare, and Medicaid. End public education. Kill the FDIC. End bankruptcy protection—private and corporate. Stop all public funding of hospitals, colleges and universities, child care, welfare programs, unemployment insurance (actually, any and all publically funded insurance.) Pass legislation that states and municipalities cannot receive more than 100% of what they contribute to the federal government from the federal government for health and safety. End all (public) funding of public transportation and the interstate highway system; all funds must come from their users only. Limit the role of government to law enforcement, the treasury, public health and safety (namely disease research and control, product regulation, fire suppression, etc), and the military and say to the people they are on their own for anything else.… If people truly want an end to anything resembling socialism in the United States, they need to be prepared for a radically different country.

Sep. 26 2008 10:32 AM
jeff weiss from ct

even if we recapitalize the banks, why r we assuming they will resume makking loans??

Aren't we pushiing on a string?

Sep. 26 2008 10:29 AM
Pam from Qns.

(CONT'D.)
Remember, this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to redistribute wealth, let's really do it instead of trickling out a puny $1000.00 (vote buy)economic incentive that is being proposed by one of
our candidates for President.
If we're going to redistribute wealth, let's really do it instead of trickling out a puny $1000.00 (vote buy)economic incentive that is being proposed by one of our candidates for President. If we’re going to do an $85 billion bailout, let’s bail out every adult US Citizen 18+ !
As for AIG, liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate.
Let the private sector bargain-hunters cut it up and clean it up.
Here’s my rationale: we deserve it and AIG doesn’t.
Sure, it’s a crazy idea that can never work. (How do you spell Economic Boom?)
I trust my fellow adult Americans to know how to use the $85 Billion We Deserve It Dividend more than the geniuses at AIG or in Washington DC.
And remember, this plan really costs only $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam."

Sep. 26 2008 10:28 AM
Pam from Qns.

Folks--Can any of you tell me what is wrong with this view: "I'm against the $85,000,000,000.00 bailout of AIG. Instead, I’m in favor of giving $85,000,000,000 to America in a 'We Deserve It Dividend'.
To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So, divide 200 million adults 18+ into $85 billon. That equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax-free. So, let’s assume a tax rate of 30%. Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
--Pay off your mortgage? housing crisis solved.
--Repay college loans? what a great boost to new grads!
--Put away money for college? It’ll be there.
--Save in a bank? creates money to loan to entrepreneurs.
--Buy a new car? creates jobs.
--Invest in the market? Capital drives growth.
--Pay for your parent’s medical insurance? health care improves.
(CONT'D.)

Sep. 26 2008 10:27 AM
Inquiring Minds

@61

agreed.

Mentioned in this thread is a video on YouTube entitled "Money as Debt". It is educational and teaches how fractional reserve banking -- and its inevitable result, inflation -- works.

This should be required viewing for everyone -- maybe as seniors in high school.

If people really saw how "debt is slavery", they would make sure they never fell in its claws.

Sep. 26 2008 10:27 AM
SF from NYC

Barry that first statement is still not true. about the daily show. Agree?

Sep. 26 2008 10:25 AM
thierry amezcua from manhattan

If we go ahead then all variable rate mortgages should be converated into fixed mortgages at a 4% rate. Give homeowner a chance to breath in return for bailing out wall street after seven years of record breaking bonuses.

Sep. 26 2008 10:24 AM
AWM from UWS

On the subject of "fear mongering", the reason Bush was able to use it to promote the idea of invading Iraq is because the public was largely uninformed, about Iraq, the region it is a part of and the history of US involvement with both.

Now, many people seem to be unable to grasp, with the most expansive investigative tool in history at their disposal (the internet), the current problem with the world's economy. Learn what a CDO is, what an MBS is, how they were created, approved and spread throughout the financial system. When coupled with the housing crisis and frozen credit markets you will come to understand how much trouble we're in.

CDOs and MBSs were the invasion, the $700 billion is the surge.

Sep. 26 2008 10:24 AM
kumru from brooklyn

Someone from westchester still says "let the markets decide" !!very funny, very funny indeed. Markets are NOT self-regulating and self-adjusting. How many time history needs to prove it?
Markets brought this upon us.. again... Why does not anyone read Adam Smith from cover to cover and instead repeat sound bites they heard from people who has read only two chapters of the book?

Sep. 26 2008 10:24 AM
barry from Manhattan

RATS
We agree....now I have no one to push against.
Next topic!

Sep. 26 2008 10:23 AM
Inquiring Minds

@KC

The other day on WNYC -- either BBC World Service or Brian's show -- they had on Former Secretary O'Neil and asked him the question

he said something like "imagine going to the bank ATM and it won't give you money...we would basically go back to the barter economy"

he is one of the few who actually said how bad it could be...

Still, that doesn't mean we should rush this.

Sep. 26 2008 10:23 AM
Judith Prager from Brooklyn

It was George Bush who spoke so often about the "ownership" society and I think this was more the motivating factor in sub-prime and Alt-A lending than the Democrats encouragement to make more loans to lower income people.

Sep. 26 2008 10:22 AM
Elyas from Brooklyn

Isn't there *some* money out there tied up in various government budgets that can be wrenched free in a moment of crises like this? For instance, the Pentagon's obscene $488 billion budget, can't $100 or $200 billion be taken from that away from the wacky weapons-of-the-future projects etc. to help grease the wheels on the economy?

How can the government ask the people to *yet again* tighten out belts when they're not willing to tighten theirs?

Sep. 26 2008 10:22 AM
SD from Manhattan

I do not want to.

Sep. 26 2008 10:22 AM
Lina from Brooklyn

Ethan, #24, that was brilliant! I'm going to forward this to all my folks!

Sep. 26 2008 10:22 AM
Shiva Raju from New Jersey

If bail out issue is so important and crucial why we are not having open debate on televison, so people can see what and who in congress are saying what? and may be we should put this issue on ballot next month people to decide - Democrat plan and Republic plan...

Sep. 26 2008 10:21 AM
Wyn Clark from Weston, CT

Question/comment for Paul Krugman regarding the bailout proposals.......instead of more trickle down economics by assisting those at the top of the wealth chain (Wall Street) has there been any thought about guaranteeing loan payments made by the borrowers as a way to shore up the value of these mortgage backed securities? Isn't the value of these securities based upon the underlying borrower's ability to make their payments? Gain: helps Main street and supports the vale of these assets held by financial institutions.

Sep. 26 2008 10:21 AM
Robert from NYC

So really what's wrong with Sweden? They have a national health plan. And are we hearing about Sweded collapsing and panicking over whatever might go wrong within their system? Aren't they taking care of it for themselves? Yes, where are the grownups!

Sep. 26 2008 10:21 AM
Alan Katz from Manhattan

Without undertaking a comprehensive appraisal and analysis of the values of the "toxic" securities (which by most accounts are still undefined), how can the government contemplate purchasing them?

Sep. 26 2008 10:20 AM
Janet Moyers from New Jersey

$700 billion is $1 million for every failed homeowner last year. Use that money to bail out individuals through low interest FHA loans,since the root of all this is the mortgage crisis. Use the rest of the money to fund infrastructure inc. mass trans(con-struction jobs) and Al Gore's energy initiative.
Bush has run this country on fear of everything too long.

Sep. 26 2008 10:20 AM
Joe Corrao from Brooklyn

Margaret Fell from Queens: 9 months ago that would have been Socialism, now its being a good American....

Sep. 26 2008 10:20 AM
Caroline from NYC/Manhattan

I'm unsure of my own position on the 'bailout'. My husband works on Wall St. so understand more than the average person what is going on. We don't own our apt., we don't have a car, we aren't 'fat cats' though we do well.

Suze Orman was on Oprah yesterday (I work, I DVR'd it) and she gave an excellent explanation of how this impacts Main St.

I think most people just see this as a Wall St. bailout and don't understand Wall St. affect on local banks, etc. (See WaMu.)

Sep. 26 2008 10:20 AM
Dylan from Astoria

I don't think framing this as crisis for the economy is valid or helpful. This is a crisis for the financial system - which is very important, but not critical yet and thus not a 'crisis.'
Time for debate and gathering information is critical. We are in a crisis of ignorance about the junk assets out there that no one wants to purchase.
As Roger Lowenstein wrote in the New Republic "The only conceivable purpose of Treasury intervention is to buoy the market (using taxpayer funds) by paying higher-than-market prices. After all, if the government merely intended to match the market, what would be the point?"
http://www.tnr.com/politics/story.html?id=0a253ad4-7e1a-4d8e-b50a-ecb61ec70855

Sep. 26 2008 10:20 AM
Nancy Smith from New York City

Why has there been no concern voiced about the extraordinary consolidation of the financial industry as a result of this whole debacle? We may wind up with as few as three huge, monopolistic companies controlling our financial industry: Chase, Citibank, Bank of America. And the government is aiding and abetting this process, just as it got rid of all the small, state-based institutions during the savings and loan crisis.

Sep. 26 2008 10:19 AM
SF from NYC

Barry- I absolutely think Obama is also perpetuating the scare tactics.
This is a problem the people of America should vote on. Its our money!!!!! Why should we let Paulson and Bernake (non elected btw) decide?

Sep. 26 2008 10:19 AM
John from Brooklyn

What Krugman doesn't mention in his column this morning is that the Congressional improvements on Paulson's original plan -- improvements of which Krugman writes approvingly -- mirror, to a remarkable degree, Obama's recommendations.

Obama's own release Wednesday of his and McCain's "joint statement" included an addendum of a half-dozen protections that Obama thought must be a part of any bailout legislation.

These were protections that McCain refused to sign on to -- which is why the "official" statement was basically meaningless.

Sep. 26 2008 10:19 AM
KC from NYC

Paul Krugman often has interesting things to say, but "bubbles happen" isn't one of them. Our market now functions exclusively as a series of bubbles. Remember when the market used to go bust every fifty or seventy-five years? It now does that every ten years (anybody remember the tech bubble?). Unfounded speculation is the name of the game. Either this really gets fixed, or we just commit $700 billion to more of the same.

Thanks, Brian, for trying to get him to say the actual odds of a "meltdown" happening. I guess nobody in the mainstream is going to give us a number. Maybe it's not high enough to make us scared enough.

Sep. 26 2008 10:19 AM
Pam from Qns.


If we're going to redistribute wealth, let's really do it instead of trickling out a puny $1000.00 (vote buy)economic incentive that is being proposed by one of our candidates for President.
If we’re going to do an $85 billion bailout, let’s bail out every adult US Citizen 18+ !
As for AIG, liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate.
Let the private sector bargain-hunters cut it up and clean it up.
Here’s my rationale: we deserve it and AIG doesn’t.
Sure, it’s a crazy idea that can never work. (How do you spell Economic Boom?)
I trust my fellow adult Americans to know how to use the $85 Billion We Deserve It Dividend more than the geniuses at AIG or in Washington DC.
And remember, this plan really costs only $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam."

Sep. 26 2008 10:19 AM
jawbone from Parsippany, NJ

Sterling Newberry wrote yesterday that this is a problem caused by deregulation and "deregulatoring." Not only was there deregulation, but then the number of regulators was drastically cut.

http://firedoglake.com/2008/09/24/the-crooked-deals-collapse/

Warning: wordy writer!

Sep. 26 2008 10:19 AM
barry from Manhattan

HEY!
Can we get back to the political exploitation of this crisis.
It's a lot more interesting.

Sep. 26 2008 10:18 AM
Margaret Fell from Queens

I keep asking this question and not getting an answer: WHAT IF the administration had decided 9 months ago that while no one middle- or working-class homeowner facing foreclosure or default mattered, the aggregate amount of bad mortgages did constitute an entity too big to be allowed to fail--- would moving to bail out the homeowners (not the mortgage companies) back then have prevented all these financial failures downstream? And would it have cost lots less??

Sep. 26 2008 10:18 AM
James Hunt

Please ask Dr. Krugman why the inference to capital gains tax changes makes the Republican proposal a nonstarter.

Sep. 26 2008 10:17 AM
abigail pessen

Eliminating the Bush tax cuts for the wealthiest Americans should be a condition that the Democrats insist on in exchange for supporting the bailout, because the bailout is inevitably going to be paid for by tax increases in the future.

Sep. 26 2008 10:17 AM
Joe Corrao from Brooklyn

Brian: you just said "getting more poor people into home ownership"...part of the problem is "poor people" getting a home they can't afford.

Sep. 26 2008 10:17 AM
Alex from brooklyn


The risk was heaped on unknowing investors ENTIRELY because of bogus ratings for those securities. If they were rated appropriately, there wouldn't be this problem.

It's the rating agencies who are responsible, not the people who put the instruments together.

Sep. 26 2008 10:16 AM
Lina from Brooklyn

Another question- just where is this $700 billion coming from?? Why can't we find the money to pay our teachers, provide free health insurance for everyone, quality housing, etc, but somehow, when the fat cats need a handout, voila, $700 BILLION just appears??!! Disgusting!

Sep. 26 2008 10:16 AM
SD from Manhattan

How can you ask us our opinion when we do not know what is going on. No one has been honest with us nor have they told us the plan. What are you talking about? When are you going to give us the honest truth?

Sep. 26 2008 10:16 AM
Brett Summers

Why is there no discussion around the possibility that the price of homes should not be as high as they have reached, and that this correction is necessary for a healthy economy. Essentially the problem can not be eliminated only postponed.

Sep. 26 2008 10:16 AM
Joe Corrao from Brooklyn

Inquiring Minds: ya it is great...EVERYONE here should spend 45 minutes watching it.
and vote 3rd party people.

Sep. 26 2008 10:15 AM
Gary Gepner from Stamford, CT

If all the democrats and a minority of republicans agree to vote for the package, what is the problem? Doesn't that mean the legislation would pass for the $700 billion?

Sep. 26 2008 10:15 AM
Susan Glassman from Chestnut Ridge, NY

Dr. Krugman,

If liquidity is the problem, couldn't the government deposit part or all of the $700 billion in savings accounts or CDs to give the banks and financial institutions more available assets? Thanks.

Sep. 26 2008 10:15 AM
Matis from New York

Why can't there be more time to consider alternatives? This is such a big deal, a little more time should be considered, especially since the next two days the markets are closed anyway.

Sep. 26 2008 10:14 AM
landless from brooklyn

I have a question for Mr. Krugman. What do we get in exchange? Can the US taxpayer demand the right to unfettered union organizing? Can we negotiate for improved pay? Since the average pay has declined since the 70s, don't we have right to get something.

Sep. 26 2008 10:14 AM
barry from Manhattan

Wow SF you think Paul K is scare mongering to further the capitalist manifesto?
I guess you think Obama also perpetrating the fraud since he support the plan to bail out WallStreet.
Interesting...

Sep. 26 2008 10:14 AM
Ethan from Upper West Side

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

Sep. 26 2008 10:14 AM
Ian Hughes from NYC

Re: the O'Neill plan vs. the "insurance plan", O'Neill's main thesis is that if the Fed sets the price for the financial instruments and then guarantees that price to maturity, then the instruments become instantly viable, almost like cash. That liquifies the market, which goes to the heart of the problem. No?

Sep. 26 2008 10:14 AM
Lina from Brooklyn

I'm wondering if credit unions are now the way to do, instead of these mega banks? Anyone have any advice??

Sep. 26 2008 10:14 AM
Alex from brooklyn


Can Krugman address the Zingales memo (he's a UChicago economist and the memo suggest some ideas that keep the gov from having to spend any money at all).

Sep. 26 2008 10:13 AM
jawbone from Parsippany, NJ

Bernhard at Moon of Alabama.org (no spaces, no caps) has been right on the issue predicted this for well over a year. He says today the Dems have been had by the Repubs.

Also. Paulson has misstated the problem (to his and his type of former work's benefit:

"This is not a crisis over liquidity and providing liquidity, while in some cases necessary, will not relief the blocked interbank credit markets. This is a solvency crisis where many financial entities are suspected to be bankrupt. The people in bank A know how they fudge their own balance sheets to hide the losses. They correctly suspect that bank B does the same. That is the reason why A does not want to lend to B and B does not want to lend to A. Those who have money prefer to stay liquid instead of taking the risk to lend it to some bankrupt entity.

That situation is not good and it will eventually lead to trouble for Main Street. There are ways to get out of this, but the Paulson plan was about the most ineffective and wasteful way one could think of."

There are alternatives, but they are not bein gdicussed on the MCM...or Congress??

Roubini says no to this approach. Alternative views were discussed on the Diane Reems Show yesterday (audio yes, transcript I can afford, no).

Ask about handling the CDS's -- Credit Default Swaps. Is that the bottom layer of the problem right now?

Sep. 26 2008 10:13 AM
Demetri from brooklyn

why doesn't the fed make corporate loans if the banks won't do it. they can make liquidity directly.

Sep. 26 2008 10:13 AM
Inquiring Minds

@12 Joe

thanks for mentioning "Money as Debt" video

changed my life!

unbelievable.

Sep. 26 2008 10:12 AM
Joe Corrao from Brooklyn

SF from NYC: More Shock Doctrine.....

Sep. 26 2008 10:12 AM
erick from Rochester, NY

Can someone explain to me why it is that this $700 billion can't be given directly to the tax payers? That's roughly $3,000 for every man woman and child in this country. $12,000 for a family of four. THAT WOULD STIMULATE THE ECONOMY.

Sep. 26 2008 10:11 AM
barry from Manhattan

Is Krugman just scare mongering?
Like Bush did on the run up to the war?
The Known Unknowns?

Sep. 26 2008 10:11 AM
Tony from San Jose, CA

But an insurance plan is just a scam:
* If those assets goes up, banks gain
* If they go down, banks break even

Tails I win, face I break even.

For the taxpayer, it is tails I break even, face I lose.

Sep. 26 2008 10:10 AM
SF from NYC

Of course this is false panic. The same tried and true doctrine of the capitalist manifesto.
Scare them into doing what they may not want to do otherwise.
this is a problem that needs time and attention. not panic policy.

Sep. 26 2008 10:10 AM
Joe Corrao from Brooklyn

No but printing 700 billion dollars of fiat currency will weaken the dollar even more and lead to even crazier money problems....watch the documentary IOUSA...and this online video..."Money As Debt"
http://video.google.com/videoplay?docid=-9050474362583451279

Sep. 26 2008 10:08 AM
Ian Hughes from NYC

Brian could you please ask Mr Krugman as a follow-up to your interview with Paul O'Neill: is the so-called insurance plan now on the table as an alternative to the bailout plan the same idea as the one O"Neill was pushing? Sounded like a wise solution to me.

Thanks.

Sep. 26 2008 10:08 AM
Lane Trippe from New York

What about the idea of a "quarantine" -- of the "toxic", "viral" mortgage-backed securities? I.e., order a suspension of trading in these toxic entities--toxic because their value is so uncertain/low--for a period of perhaps one quarter/half year. But also offer companies, those that have enough other value on their books to pay the premiums, insurance on the value of their (suspended) mortgage-backed securities of (this is arbitrary) 1/3 their value as of, say, the end of last quarter. AND, when trading is resumed, if there's a profit, US govt gets some part of that.
You get the idea... What do you think of using a "quarantine" + guarantee?

Sep. 26 2008 10:08 AM
barry from Manhattan

Sounds like they will dole it out in pieces.
By the way what is Obama's position on this 700 billion
bailout.
He hasn't weighed in yet. Has he?

Sep. 26 2008 10:07 AM
Lee Karon from NYC

I'd like to hear what Mr. Krugman thinks of the proposal by former Treasury Secretary Paul O'Neill, i.e., guarantee the bad investments, instead of buying them.

O'Neill suggests the government should provide federal backing to the mortgage-backed instruments and avoid putting up $700B in cash. The securities can then be traded, thus "unfreezing" the stock market.

Sounds sensible to me, but I'm just a humble taxpayer.

Thanks!

Sep. 26 2008 10:05 AM
barry from Manhattan

I disagree.
But let me ask this: Do you agree with the position that is is a false panic?

Sep. 26 2008 10:05 AM
Joe Corrao from Brooklyn

Here here (or is it hear hear) let the markets decide....

Sep. 26 2008 10:03 AM
Peterson from Westchester

Prof. Krugnam is hardly an objective expert. He's a left-wing anti-capitalist economist who ALWAYS opts for regulation over markets. OK, those who believe in regulators, the current scenario is how well they work.
Let the markets decide...

Sep. 26 2008 09:59 AM
Alex from brooklyn


Isn't the plan floated by GOP conservatives just to do what made AIG go bankrupt? We've already spent $85B because of that. Why would we get into that dumb business ourselves?

Is the plan even workable, anyway? How do they address figuring out pricing?

Bonus questions to point out how dumb and/or disingenuous it is?

*How do they raise enough money to pay the liabilities? Wouldn't it have to be mandatory, making it an additional regulation -- one that doesn't prevenent dumb behavior.

Wouldn't it just be a new tax on financial deals?

Wouldn't that additional transactional costs on deals slow down the economy?

In other words, while it might cost less up front and prevent the gov from taking an equity stake, doesn't it still violate their ideology?

Sep. 26 2008 09:44 AM
SF from NYC

Barry,
What you say is simply not true about the Daily show. They are not "lambasting McCain for also Questioning the bailout plan."
They just showing the way McCain is using this bad situation were in for political gain.
C'mon man get real.
-SF

Sep. 26 2008 09:38 AM
jenl from manhattan

I would like to ask Mr. Krugman whether it is fair that the current crisis is being blamed almost entirely on "wall street greed." It seems to me that it is caused by the meltdown of the housing bubble, and there are lots and lots of people who benefited from that bubble over the past few years (i.e., real estate agents, mortgage brokers, housing developers, plumbers and electricians and not to mention homeowners). It has been one of primary drivers of our economy. Isn't this bailout just paying the piper for our illusory properity over the past few years?

Sep. 26 2008 09:31 AM
Barry from Manhattan

Many Obama voters are on the one hand calling the bailout plan "yet another fraud" perpetrated by the Bush admin while at the same time criticizing McCain for seeking to find a better soulution to the crisis.

Perfect example is Jon Stewart last night.
He opened with a scathingly funny bit questioning the bailout plan by comparing it to the run up to the Iraq war.
Fair enough. Panic Mode Politics
Then immediately Stewart follows by lambasting McCain for also questioning the Bailout plan.
Well which is it?

Your thoughts?

Sep. 26 2008 09:17 AM

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