Nobel Prize winning economist Joseph Stiglitz thinks the Obama economic team going down the wrong track.
How to fail to recover the economy
• Socialising losses while privatising gains is more worrisome than the consequences of nationalising banks. American taxpayers are getting an increasingly bad deal. In the first round of cash infusions, they got about $0.67 in assets for every dollar they gave (though the assets were almost surely overvalued, and quickly fell in value). But in the recent cash infusions, it is estimated that Americans are getting $0.25, or less, for every dollar. Bad terms mean a large national debt in the future. One reason we may be getting bad terms is that if we got fair value for our money, we would by now be the dominant shareholder in at least one of the major banks.
• Don't confuse saving bankers and shareholders with saving banks. America could have saved its banks, but let the shareholders go, for far less than it has spent.
• Lack of transparency got the US financial system into this trouble. Lack of transparency will not get it out. The Obama administration is promising to pick up losses to persuade hedge funds and other private investors to buy out banks' bad assets. But this will not establish "market prices," as the administration claims. With the government bearing losses, these are distorted prices. Bank losses have already occurred, and their gains must now come at taxpayers' expense. Bringing in hedge funds as third parties will simply increase the cost.
Our kids and grandkids will have to pay all that money back at 100 cents to the dollar plus interest.
When Obama took office everyone was expecting decisive action to resolve the banking crisis. The plan Treasury Secretary Geithner finally gave us wasn't sufficient to restore the confidence to halt a sustained slide in the market. Now dropping another 21% since the Geithner plan was announced exactly one month ago today.
Paul Krugman's take on the Geithner Plan
An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can’t understand. I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan.
So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place.
How can people get confidence from something they (or even a Nobel Prize winning Economist like Paul Krugman) don't understand?
The Leaders at the G-20 Summit coming up in a couple of weeks, will face the daunting task of remaking the international financial architecture to replace the one that has existed since the Bretton Woods agreement was made in 1944. The post World War II era that has lasted for 65 years, is about to come to an end.
Its time to take the bull by the horns. Hell even John McCain has joined the rising chorus coming from all across the political spectrum calling for drastic action.
For the best explanation I've seen on how we got into this economic predicament read this in depth 20 page article at Multinational Monitor: Wall Street’s Best Investment: Ten Deregulatory Steps to Financial Meltdown