Nobel Prize winning economist Paul Krugman recently opined in his New York Times column that the about-to-be-released Obama plan to resuscitate a financial system on life support “is more than disappointing. In fact, it fills me with a sense of despair.”
Those are heavy words coming from an economist who was an early warner of the subprime and housing meltdown, which has infected the whole economy.
We agree with Krugman. The plan will let “investors” and the “market” decide what the value of the “toxic assets” are worth. (Many argue they are worthless!) The same “investors” that got us into this mess in the first place! Taxpayers could take a bath.
Krugman fears the current plan — a private-public partnership — will fail, and then, he argues, so will the Obama administration. The anger of the public over a “mere” $160 million for AIG exec bonuses will pale in comparison to the anger of a multi-billion boondoggle, he says.
Krugman, along with another Nobel Prize winner, economist Joseph Stiglitz, urges the government to “take over” or “nationalize” the insolvent banks.
There are solid and historical arguments for this necessary step.
We would add that it’s the stock holders and financial institutions that have eat their losses, not the taxpayers!
Up until now there has not been a groundswell from the grassroots for a government “take over” of insolvent banks. The anger people feel could be directed to advocating for this necessary step.
There are a few handles the grassroots can use to build such a groundswell. The AFL-CIO labor federation passed a resolution recently calling for government intervention that protects “the public interest,” and not merely rescues “executives or wealthy investors.”
The Obama administration’s announcement that it will seek the power to shut down troubled institutions like AIG is a good step.
Nationalization is not off the table. All is not lost, Krugman argues “the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.”