In an Interview given to CNBC this morning, Nobel prize economist Joseph Stiglitz says the "rescue" bill for the financial services industry should be passed.
I apologize for including neither a transcript or the embedded video, but I didn't see the transcript and I'm a "tubes" newbie so I'm not up to embedding video. If a commentor can help, I'd welcome it.
Anyway, early in the interview he does say that he thinks the bill should be passed despite the fact that there are better options. If you go to the 8:00 minute mark or so, the interviewer asks him to confirm this, and he makes it very clear that he thinks that the bill, flawed as it is, should be passed as better than nothing.
Other points from the video below.
First, let me make this clear. Stiglitz has not been grabbed by the orbital mind control lasers. Most of the interview is devoted to him saying that the bill is not good. Stiglitz favors a large injection of capital into banks by having the government buy equity in them. He thinks that that would more efficiently provide the liquidity the market needs and would give the government a better shot at a positive return on its money.
Stiglitz says that this is the "mainstream" economic view, and he says that he is shocked that it is not being considered. The interviewer asks if he thinks it would be harder to sell because it would seen as even more of a Wall Street give-away. He correctly says that it is less of a give-away to Wall Street. Neither he, nor the interviewer make any mention of the fact that it would be viewed as "socialism" by the entire Republican Party, which is why I think it is a political non-starter.
Stiglitz talks frequently about the need for an equity stake in the companies we bail-out. The mention of Warren Buffet's capital infusion into Goldman Sachs comes up, and he highlights the importance of the warrants that Buffet got. Oddly, though, the subject of the Warrant provisions in the current bill is never discussed. I am left to conclude either that he is only following the news through media releases and is ignorant of the details of the bill, or that he thinks that the warrants are flawed (presumably because that they are conditional) and so dismisses them.
He says that the $700 Billion may only be a portion of the upfront cost needed, but does make it clear that he believes that the government will ultimately receive most of its money back. His chief problems with the bill seem to be the lack of a sound pricing mechanism (he is very dismissive of the auction idea), the fact that we would get junk dumped on us because there will be large asymmetries of information (the selling banks will know a lot more than the buying government), and the large potential for favoritism due to the power of the treasury secretary to decide what is worth buying at which price.
The interview also discusses the need for economic stimulus, and other progressive fiscal policies to help the country through the contraction. IMHO, we have no chance of getting these done now, but can begin working on them 1/20/2009.
To repeat the headline, though, despite all of these flaws, he would rather see the plan pass than not. He sees an economic contraction coming no matter what we do, but thinks that it will be much worse if we do not act.
For those keeping score at home, the triumverate of "Noted Economists With Good Progressive Credentials," (Which may be a group that only exists in my own mind, although they are all cited frequently here on Dkos) Stiglitz, Krugman, and Roubini, now break 2-1 in favor of passing the Bill. Krugman has been in favor of the bill from the beginning. Stiglitz had been cited as being in opposition to the Paulson plan, but had not pronounced on the congressional compromise to my knowledge, and Roubini was, and still is as far as I know, in favor of a plan only if it includes equity.
Readers of my other diaries will know that I have been siding with Krugman all along and am welcoming Stiglitz to this side because I think that the equity plan is not going to fly politically, not because I don't think its a better idea.
The bottom line for me is the 5 step program I have detailed elsewhere:
- Pass the Bailout
- Work to get Obama and as many Down ticket Dems as we can elected. We need a popular and electoral vote landslide to get Barack a mandate, and as large majorities in congress as we can get.
- Get to work 1/20/2009 passing good regulation of the financial service industry and progressive economic plans (including health care for all). In fact, of course, people should be working on legislative language Nov. 5th if not sooner.
- Write the history of the last 8 (and 28) years of Republican ideology in such a way that it will not be able to rear its ugly head again. Deregulation does not work. Governments and financial systems need transparency and accountability. It should be obvious to anyone, and we need to make it so.
- Repeat Step 2.
but it is clear that he is not willing to wait for a better bill. He wants this one passed.