The Geithner bank rescue plan, says liberal economics columnist Paul Krugman of the New York Times, "fills me with a sense of despair." And the liberal blogosphere isn't much happier with it. One denizen of the Daily Kos site describes the gist of it this way:
1. bribe (through subsidies) several hedge funds to bid up the prices of junk bank assets - this will establish "market" price.
2. Treasury will proceed to buy up bulk of the assets from banks - cash for trash.
So what is their real beef with the $1 trillion, public-private partnership sketched out by the treasury secretary? I think there are several components:
1) Liberals think it won't work. Krugman and others complain that the price discovery process is still nebulous, the exact thing that helped sink the original Paulson Plan. So the government, along with its subsidized private sector partners, could end up overpaying for the so-called toxic assets. This could cost taxpayers big money and not really solve the problem of unstable bank or reduced bank lending.
2) Liberals think it won't prevent a repeat problem. Krugman & Co. want troubled banks nationalized (with balance sheets cleansed) and broken up, as well as the implementation of regulations preventing the creation of any future too-big-too-fail banks. But if the Geithner plan fails, they worry, the White House won't have the political capital to push nationalization. (Other analysts, though, think that if the Geithner plan fails, nationalization is the next step because there is no other option.)
3) Liberals are mad that private investment funds are involved. Many liberals speak scornfully of the so-called "hedge fund Democrats" such as Chuck Schumer who are pro-Wall Street and pro-globalization. The whole Geithner plan, in that it uses private investment money, smells like a creation of the hedge fund Democrats to make fat profits for their campaign contributors with little risk. Profits are privitized and risk is socialized. And why should Wall Street, which caused the problem, they argue, profit from fixing it? The big stock market rally only emphasized the point.
4) Liberals are mad Uncle Sam won't get all the profits. I think this is the big one. Liberals aren't worried that the Geithner Plan won't work. They're worried it will. See, when the Paulson Plan came out last September, the Bush White House insisted the scheme would eventually make money for the government since it was buying all these artificially undervalued, distressed assets that would one day rise in price. Former hedge fund manager Andy Kessler agreed, and publicly estimated that the $700 billion toxic asset buy could generate more than $2 trillion for the government. A few days later, New York Times columnist Tom Friedman was already spending that dough in an effort to "green the bailout", insisting the profits from the Paulson Plan be invested in a "smart transmission grid or mass transit." But the Geithner Plan splits the profits 50-50, and the government's share may further be eroded by $750 billion in new capital injections. Not much money left over for a Green New Deal.
5) Liberals are mad that conservatives aren't. The Wall Street Journal editorial page just sort of shrugged at the Geithner plan, saying it was encouraged that the White House had decided on a path forward. Any plan (as long as it was not nationalization) was better than no plan. And the conservative blogosphere still seems more enthusiastic about attacking the AIG tax increases than the complex Geithner plan. What's more, with liberals attacking it, maybe it's not such a bad idea.