Paul Krugman: "The Zombie Ideas Have Won"

(No, not directly 9/11 related, but the economic decisions coming down the pipe from the Obama administration will have profound repercussions for all of us. Hopefully this will help shed some light. -rep.)

On 3.23.2009 Democracy Now, Nobel Prize winning economist Paul Krugman had some choice things to say about the Obama administration's plan to buy up all of the subprime toxic assets with primarily, our tax dollars, which Wall Street won't be caught dead doing;

"A zombie idea is an idea that you keep on killing, because it’s a bad idea, but it just keeps on coming back... we’ve had this idea since Henry Paulson came out with his plan six months ago... that the real problem is that the market is undervaluing all of these toxic assets, and what we need to do is have taxpayers go in and buy them at a fair price, and that will solve all of our financial problems. And that’s what happened. The Geithner plan is a complicated, disguised variant on the same idea. It’s the zombie that you keep killing, and it just keeps coming back...

The important thing is not the shared equity. I’m sorry, it’s hard to avoid lapsing into jargon here. But 85 percent, at least according to the counts over the weekend, 85 percent of the money is going to be a loan from the government, which is a non-recourse loan, which means that it’s backed only by the assets that these guys are buying, which means that if the thing loses more than 15 percent of its value, which is highly, you know, possible, given how uncertain these things are worth, then the investors, the private investors, just walk away. So there’s... a "heads I win, tails you lose". If... you buy something at $100 and it goes up to $150, you make $50. You buy it at $100 and it goes down to $50, then you only lose $15, because the other $35 gets eaten by the taxpayer...

It’s basically what happened with savings and loans in the 1980s. They were deregulated and basically put in the position where the deposits were guaranteed, but the owners of the banks could do whatever they wanted, and so they took these huge risks, and most of the risks turned out bad. But if the risks turned out bad, it was the taxpayers’ problem, not the bank owners’ problem. Same thing here. They’re deliberately setting it up... basically where the upside belongs to the private investors, but most of the downside belongs to you and me.

AMY GOODMAN: So you socialize the debt, you privatize the profit...

PAUL KRUGMAN: Yes... it's lemon socialism. The minuses are the taxpayers; the pluses are the private investors.

There has been a lot of attention focused on the AIG bonuses, but this appears to be mis-directed attention. Prof. Michael Hudson explains it succinctly here;

"Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1% – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a "pass-through" to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence."

At Huffington Post, Robert Kuttner writes;

"It would be hard to find two administrations more different than Bush and Obama. Yet, when it comes to bailing out financial firms, Geithner's approach is a seamless continuation of his predecessor, Hank Paulson's. It makes you wonder who is the permanent government. Perhaps Wall Street?

Even the players are the same Goldman-Citigroup crowd. The well named Neel Kashkari, the Citigroup executive brought in by Paulson to run the TARP program, is still in place. Geithner's top assistant, Mark Patterson, is from Goldman. And most of the concepts are coming from the same Wall Street crew."

Lots of banksters, not much change.

"No Longer Available" Here is another version

Money Is Only A Redeemable IOU Note Or Electronic Entry

Money or credit allows different components of an economy to interact. Without money or credit, essential economic trade stops or is reduced to a less efficient barter (a type of trade in which goods or services are directly exchanged for other goods and/or services).

Money or credit is comparable to the wiring in an electronic device that connects various unique components and allows overall operation.

Not only has the public tolerated the control of private interests over this essential system, it has tolerated their application of interest to any essential credit that is distributed.

Instead of allowing the organizations that cannot or will not provide essential credit to simply "die", public money is being given to these private profit-oriented organizations so that these organizations can "lend" it back to the public with interest fees attached.

Freedom isn't free.

There are different types of money

depending on the purpose. With a neutral money such as gold or silver, the market for these commodities determines their value, not the government. The government only sets the unit of account, and supplies coinage. This is the streamlined form of barter called money. Other constructs, such as bank notes, the supply of which is determined by a bank, have other characteristics. These characteristics are not neutral, and are meant to benefit certain parties. They give the government, or the central bank, as the case may be, power it would not ordinarily have. Their value is often based on laws saying they must be accepted at face value for payment of a debt, even though their actual market value does not approach the face value.

The question is not really about fixing the economic situation, but who is benefiting by the $1 trillion bailout. That's what it is all about. If they adopted a neutral situation, such as a gold or silver standard, and allowed the natural avenues of economic correction to operate, it would not suit their purposes, which is why they don't do that. Bailouts, as one person remarked, and as was certainly the case for the Mexican bailout of 1995, are designed to prop up a certain class of investments that would otherwise go sour. So it is not to bail out the economy, or bail out Mexico, but to bail out that class of investors.


Almost as much audacity as was required by the 9/11 high perps.

This is so 'in your face' theft it boggles the mind. The truth of 9/11 has hardened us. In my mind Obama is a failing President. If he "gets it" it's as likely that he's in on it (doing his part, as it were). Sad.

Support H.R. 1207 bill to audit the Fed

Write/email/telephone your member of Congress and ask them to co-sponsor H.R. 1207, the Federal Reserve Transparency Act, which would thoroughly audit the Federal Reserve System.

Deja Vu......

Somebody wake me up or maybe I am dreaming but didn't we say we were going to throw a TARP over these trouble assets like three bailouts ago? Oh and Paul you sound so pleased that slave workers in the third world can finally have these jobs and globalization is the ticket eh? I don't think so, we built these mature companies with generations of hard work and long hard fights for fair wages, safe working conditions, good enviromental controls, pensions etc. We didn't export democracy around the world we just shipped the labor to slave markets to make more profit for the fat cats at the top. And don't hand be this crap about the $500 dollars I can save this year at the greatWall mart store. The truth is this country has sold out the average middle class American and all those high tech jobs we were going to move to went to India anyway. And the service economy was really the wall street financial service economy which accounted for a huge portion of GNP and more and more creative financing for products was constantly needed to make our numbers. And now the Ponzi scheme is up and the economic model is failing the world and we need a new model, we need a human model and the only thing stopping us is what has always stopped us and that's those very very very fat cats at the top who like things just the way they have always been and a new world enslavement suits them just fine. So I say don't blame the auto workers for making too much and having too many benefits what did they ever do but work hard make enough money to support a family, send a kid to college, have healthcare, a pension for old age, a vacation once in while. Is that too much to ask? I don't think so.