Krugman: Balance sheet baloney - "Hold to Maturity" versus "Fire Sale" Prices

[bridgit]

'There's a turn of phrase I hate in the current discussion, because it sounds smart and serious but is in fact a complete evasion of the key issue. And I'm sorry to say that Ben Bernanke uses it in today's testimony:

More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

"Removing these assets from institutions' balance sheets" what an evasive phrase.

I mean, any bank that wants to remove toxic assets from its balance sheet can do it at a stroke - just declare them worthless, and poof! they're gone. But of course, that would reduce confidence and capital, not increase it - and that's not what Hank and Ben are talking about. They're talking about turning the assets over to Uncle Sam, and getting cold hard cash in return. And then the question is how much cash they get in return. It's all about the price.'

http://economistsview.typepad.com/economistsview

[magellan]

1. Something for nothing, that's what BushCo is giving them

At taxpayer expense.

I will never, ever understand how Repubs can be okay with massive redistribution of wealth to corporations and the wealthy while opposing food stamps and health coverage for the struggling family next door.

Who Would Jesus Bail Out?

[bridgit]

2. I'm finding the extortion of it all very strange indeed: do it or more of you lose your jobs...

do it or if you don't you'll be praying for hell cause what is coming you don't the mind to imagine. Isn't that the kind of shit one hears from a mob fixer, numbers man, or bookie come to collect? Indeed so here...

"Who Would Jesus Bail Out?" :thumbsup:

[avaistheone1]

3. Gee where have we hear "Be afraid. Be very afraid" before?

More of the same crap to scare the sheeple.

[bridgit]

7. Pretty spooky alright, just in time for Halloween

[BraneMatter]

5. You have to go back...

to the time of the Enlightenment to understand the historical forces.

"Conservatives" were allied with the king and nobility. The Church heirarchy was also allied with the king and nobles. Both king and Church wanted to protect their privileged position and wealth.

The liberals, the revolutionaries, were against the old feudal system, and the king, nobles, and Church heirarchy. They wanted democratic reform, and saw that the feudal age of Popes and kings was giving way to the industrial age and new classes and labor relations were emerging.

Eventually, conservatives allied themselves with the new class of capitalists, or bourgeoisie. They followed the money after the ancien regime was overthrown. The Church did likewise. Although the "old wealth" also survived among various European royal families (as in England), who also became involved in banking and capitalist ventures.

Conservatives are still allied with the Church and wealthy capitalists (both old wealth royals and new wealth bourgeoisie). It's never been about Jesus. It's about money and power. Jesus and the Church are just a mechanism used to keep the riff-raff (working class) in their place.

As Marx pointed out, there is a certain ascetic trend in Christianity, based on Jesus' sayings, etc., that occasionally aligns itself with the proletariat under a type of socialist philosophy. An recent example would be "Liberation Theology," which has been mostly condemned by the Popes and Church heirarchy, although it is still popular among many priest who have direct contact with the poor of Central and South America.

The Popes and Bishops of the Church are still treated as royalty and nobility today by the diplomats of the various nations, and the Church certainly has powerful friends among political leaders and the wealthy elite of the world.

To be fair, most Protestant mega-churches today are also big money operations, and conservatives make up a good portion of their ranks.

Christianity, for the most part, is aligned with capitalism and conservatism. (I am using the term "conservatives" in the more classical sense, as well as from a Marxist perspective, so both Democrats and Republicans I would classify as "conservatives," because as parties they are aligned with the bourgeoisie and wealthy capitalists, not the people.)

[MannyGoldstein]

4. Excellent Blog, Thank You

Pithy and salient.

[TahitiNut]

6. Krugman's most important point ...

Now, if the price Treasury pays is very low — anything comparable to what financial institutions are able to sell the stuff for now — it’s going to do nothing for confidence and capital. If the price is high, confidence and capital will improve — but taxpayers may well take a big loss. The premise of the Paulson plan– though never stated bluntly — is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?

But how can we help the financial situation without making that bet? By taking an equity stake. That way, if it turns out that the feds are pumping money in at above-fair prices, at least they get ownership, just as a private white knight would have.

There is no, repeat no justification for refusing to grant equity warrants that provide some taxpayer protection. This is, for me, an absolute deal or no-deal point.

http://krugman.blogs.nytimes.com/2008/09/23/balance-sheet-baloney/

Listen up, America!!
:grr: