The Nobel Laureates and lesser pundits continue to line up against Tim Geithner’s latest gift from taxpayers to Wall Street. Columbia professor Joseph Stiglitz is the latest to dismiss the idea that Geithner’s banking fix is a “win-win-win.” Instead, he describes it as a “win-win-lose”:
Stiglitz’s complaint is the same one we’ve been hammering home here: Contrary to Geithner’s assertions, the “market” will not be pricing the crap assets the taxpayer will paying Wall Street $1 trillion for. Instead, a highly subsidized investor will be intentionally overpaying for the assets at taxpayer expense–thus secretly recapitalizing the banks.
Stiglitz walks through the maths, as Paul Krugman and others have before him. Nationalization, he says, is a far better alternative, and he cites examples in which it has worked. Then he summarizes:
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.
In contrast to the stance it has taken with Detroit, the Obama administration is taking the easy, big-money-friendly way out here. Tim Geithner has spent the last six months searching for a way to pawn off the cost of banking industry stupidity on taxpayers without taxpayers noticing, and now he has apparently finally found one.
The Obama administration still claims to care about ideas, however–to weigh counter-arguments carefully every time it develops a policy decision. So now that not one but two Nobel prize-winning economists have come out in the pages of a liberal publication to condemn the administration’s plan as a gargantuan, disguised theft, will the administration finally at least explain why it thinks Messrs. Stiglitz and Krugman are wrong?