Does a Single Independent Economist Buy the Geithner-Summers-Bernanke Approach? → Washingtons Blog
Does a Single Independent Economist Buy the Geithner-Summers-Bernanke Approach? - Washingtons Blog

Friday, March 20, 2009

Does a Single Independent Economist Buy the Geithner-Summers-Bernanke Approach?

Does a single independent economist buy the Geithner-Summers-Bernanke approach?

On the left, you have:

  • Nobel economist Joseph Stiglitz saying that they have failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery, and that they have confused saving the banks with saving the bankers
  • Nobel economist Paul Krugman saying their plan to prop up asset prices "isn't going to fly". He also said:
    At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached. This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers.

On the right, you have:

  • Leading monetary economist Anna Schwartz saying that they are fighting the last war and doing it all wrong
  • Former Assistant Secretary of the Treasury and former editor of the Wall Street Journal Paul Craig Roberts lambasting their approach
  • Economist John Williams saying "the federal government is bankrupt ... If the federal government were a corporation … the president and senior treasury officers would be in federal penitentiary."
  • Prominent economist Marc Faber and many others tearing their approach to shreds.
Of course, other Nobel economists, high-level fed officials, former White House economist, and numerous others have slammed their approach as well.

Sure, the economists for the banks and other financial giants which are receiving billions at the government trough think that the Geithner-Summers-Bernanke approach is swell.

And perhaps a couple of economists for investment funds which use their giant interventions into the free market to make some quick money.

But other than them, no one seems to be buying it.


  1. Maybe if these economists had received "contributions" from AIG and the big banks they would realize the error of their ways.

  2. If I have 100 billion worth of toxic assets on my books which are actually only worth only 30 billion, I can bid 3 billion and the Goldman Sachs boys, I mean the Treasury, will put up 97 billion of the government's money - and I've just made a 67 billion profit.

    Of course, I can't put the 3 billion myself, but that's nothing that can't be easily arranged one way or another, relationships being what they are among the banking big boys. You scratch my back, I scratch yours.

    It's the mother of all moral hazards.

  3. Brad Delong is supportive

  4. I can only say that I can not say it any better than M has said it above.

    Put that before Mr. Geithner next time he is on screen, of course with the many variations on that theme.

    I personally believe the only real remedy to the financial situation is a surgical bifurcation of the banking power from the money-creation power, as advocated by Milton Friedman in his "A Financial and Monetary Framework for Economic Stability".
    I have seen nothing that beats that approach.
    100 percent reserve banking.
    Government-issue of debt-free money.


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