Today’s Foundation, Tomorrow’s Crisis: The Geithner-Summers Proposals

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Saturday August 01, 2009 · 8:57 AM PDT

2009/08/01 · 08:57

Well, I can't follow the news as closely as I used to do to not subscribing to the Wall Street Journal. However, I did find this interesting tidbit, albeit it's a little late--- sorry about that.

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Wednesday July 22, 2009 · 4:08 PM PDT

2009/07/22 · 16:08

Well, I'm not subscribing to the Wall Street Journal anymore but I still buy it occasionally and keep the old ones lying around to an extent. This is from a June 3 article I just ran across. I am very doubtful about what is going on in the economy at this point. It is good that the stock market is doing relatively well, but I am not seeing an end to the decline of our economy beginning to happen as so many seem to. This article just points to a factor that is clouding the earnings reports. The problem with this article, from my point of view, is that it represents part of the larger trend to cover over the problems in our financial sector---instead of solving them. I've already made this point repeatedly in these diaries in many different ways.

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Wednesday June 24, 2009 · 7:35 AM PDT

2009/06/24 · 07:35

Strafor's June 22 e-mail was again about Iranian election. Friedman pointed out that the Iranian situation resembled tenement Square more than Russia in 1917. I agree with this observation and this is how I've personally reacted to the election crisis from the start.

Friedman makes an interesting point about Iran's population being 70% urban. This is a United Nations classification, I believe, and it classifies communities as small as a few thousand people as urban. Here are the key sentences in regard to population:

"There are six cities with populations between 1 million and 2.4 million people and 11 with populations of about 500,000. Including Tehran proper, 15.5 million people live in cities with more than 1 million and 19.7 million in cities greater than 500,000."

So Iranian's population is not 70% urban, as we would conceive the term. It is still primarily a country of people who live in smaller communities--- people very different, as Friedman points out, from the intellectual elite in Teheran.

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Thursday June 18, 2009 · 8:34 AM PDT

2009/06/18 · 08:34

Here is a recent e-mail from Stratfor. Strafford gives permission for full reproduction as long as the e-mail is properly credited. Friedman makes some interesting points. I don't longer subscribe to the Wall Street Journal and I am picking up my news from the BBC. Friedman's viewpoint is somewhat different from what is picked up there---primarily hearing from various opposition people who tended to be modern, English-speaking types.

His points may well be valid. Ahmadinejad probably does have considerable support among the more religious, traditional people outside Teheran. Ahmadinejad has been blamed for the slumping economy, but I'm a little suspicious of Iran's "economy." I suspect almost all of the real wealth comes from oil, along with some from copper. "Most industries, comprising 70% of the economy in 2006, remained state-owned," ( Wikipedia)

State-owned businesses tend to really be a form of "make work." They produce things like cars and refrigerators purchased by Iranians, probably because they can't import these things due to tariffs, etc. So I suspect most of the fall in the Iranian "economy" is due to the fall in the price of oil.

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Sunday June 14, 2009 · 5:08 PM PDT

2009/06/14 · 17:08

A recent Wall Street Journal article underlines the biggest theme I've been following how in this diary for probably a few years. The article is about Kyrgyzstan, but my overall theme has been the folly of the US attempt to dominate Central Asia. It was a complete over extension of US power from the beginning and never had any chance whatsoever of success. All it could achieve---and did achieve was to throw the Russians onto the defensive and ultimately make them more aggressive in the region. Since they're completely winning everywhere, we just look like fools.

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Tuesday June 02, 2009 · 7:30 PM PDT

2009/06/02 · 19:30

I call this the "Geithner Two-Step." Unlike the "Geithner Shuffle" (see one of my earlier diaries) this one is my original creation. Step1: In response to a crisis, develop a plan that is both complex and vague. Step 2: Just never do anything.

This has been his approach to the problem that triggered the whole economic crisis: large quantities of suspect Mortgage Backed Securities (MBSes) held by banks. I knew, months ago when I read his solution, that it would never happen. Now here is the confirmation.

The guy is a do-nothing.

No, I do not believe the problems are "melting away" without actually being solved. Nor do I believe we are starting a "recovery."

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Tuesday May 19, 2009 · 12:39 PM PDT

2009/05/19 · 12:39

Sorry I so late posting this; its from the April 30 Wall Street Journal. Work has been hectic for awhile and I couldn't get to it.

The article just seemed odd and interesting--- so far China's stimulus package is stimulating the American economy more than the American stimulus package.

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Tuesday May 05, 2009 · 12:47 PM PDT

2009/05/05 · 12:47

Subtitle: Government has to show it can handle major insolvencies.

I don't feel like I have too much to add to this article. I have been drawing the same conclusions using inferences and intuition---these guys have the facts. The Geithner Shuffle (see second article quoted below for definition of the term) is leading us to disaster.

I have included a quote of the paragraph that at least slightly praises Timothy Geithner's public-private investment program (PPIP)---his proposed solution for getting the mortgage backed securities (MBSes), and other bad loans off the bank books. I have slammed the PPIP solution, in part because I feel it is so complex it may never actually come about.

The point of the article is well taken, however: they want something to be done to deal with the bad loans. My feeling, however, is that by making the claim that PIPP will have private money solve the problem for us by buying the bad loans--- Geithner is creating a trap for himself. The only way to bring private money in is to guarantee that they will lose money. That means the government is, in reality, spending money, which Geithner has said he doesn't want to do. There is a way out however: doing nothing, one of Geithner specialties.

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Saturday May 02, 2009 · 3:02 PM PDT

2009/05/02 · 15:02

Well, Obama has finished his first hundred days with high popularity and generally good reviews. In foreign-policy, he's made a good solid start in a long-overdue new direction. As far as the economy, the stock market has experienced a resurgence over the past month (or perhaps longer, I don't track it that closely), consumer spending is up a small amount, and there is a general feeling that the worst may be over.

However, I do not share the optimistic view on the economy and I continue to have strong concerns about how Geithner is handling the banks and other aspects of the financial mess. I am also somewhat apprehensive about the signals emerging from Obama's handling of the car companies' collapse.

In terms of the economy, the main trigger and one of the primary drivers of the economic decline has been the housing market. For one to two months, there has been much a nationwide moratorium on foreclosures. This moratorium recently ended, and it seems lately this will start to drive housing prices significantly lower---probably pulling the economy down with it, at least in the short-term. Meanwhile, the unemployment situation continues to worsen.

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Wednesday April 22, 2009 · 9:56 AM PDT

2009/04/22 · 09:56

Well, I'm still on the bank thing. Some heavyweight economists have come out with their prescription for the problem in today's WSJ, which I happen to agree with.

Underneath this I reference another Geithner article, this one from yesterday's WSJ (A3). I can't really analyze what's wrong the first paragraph, it just seems to somehow characterize the vagueness of Geithner's goals.

The second and third paragraphs bother me for two reasons. Number one, Obama went to the G-20 asking for this, and basically got shot down by other world leaders. Especially negative was Germany, which is significant because they are one of the few countries in the world actually sitting on cash at the moment, and they rejected our plea for stimulus. So it seems Geithner is unlikely to succeed where Obama failed.

The second thing that bothers me about these paragraphs is that I have a feeling Geithner is setting up his excuse for failure here--- getting ready to say that his plans failed because the world didn't stimulate enough.

I include the fourth paragraph simply because it is so goofy, another thing that bothers me about Geithner. Is someone proposing that we not have a financial system in the world?

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Sunday April 19, 2009 · 9:36 AM PDT

2009/04/19 · 09:36

Today's diary, embarrassingly, is derived from the Money and Investing section of the Wall Street Journal on Monday, April 13, 2009. I don't usually read this section, but it was sitting on my kitchen table and I just noticed it.

The most interesting information was in the article that I have utilized to title this diary. The gist of the article is that banks are, in general, making money through investment banking-type investments at this time. However, they are losing money through increasing default rates on loans they made in the past. In the short term, the question of whether they will be profitable (the usual Wall Street Journal focus) depends which of these two trends is stronger. The article also covers the fact that "three-month dollar Libor" is back down around 1% from its near 5% level in October after Lehman Brothers collapsed. I am not going to re-figure out what "three-month dollar Libor" means, but I remember from the credit crunch panic that this is a key number, and its return to low levels is good news--- in the sense that our economic system is no longer in immediate peril of total freeze. However, there is a very disturbing thing in the article,

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Friday April 17, 2009 · 10:48 AM PDT

2009/04/17 · 10:48

I find this interesting. China has experienced a small increase in factory orders; the US seems to be lagging the whole rest of the world. This could be interpreted to indicate that the US is recovering slower than the rest of the world. I don't have information or expertise to say whether this is true or not.

However, this piece of information seems interesting to me in light of the fact that I do not feel that the US is dealing ineffectively with its problems in the banking sector. To my mind, it seems that real recovery will not occur until after these problems are addressed.

Although others are also making mistakes, Geithner is the key player here. Consider one aspect of the problem, Glass-Steagall.

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Today’s Foundation, Tomorrow’s Crisis: The Geithner-Summers Proposals

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Banks, Autos, and the Government

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