Original Link: http://blogs.abcnews.com/theworldnewser/2009/03/krugman-not-alo.html
Paul Krugman went against the grain yesterday. When the details of President Obama's (and Tim Geithner's) bank rescue plan were rolled out the stock market surged. A slew of big names in the industry said they liked what they saw and would be willing to jump in and buy the bad assets.
But there seemed to be a lone voice of dissent. The Nobel Prize winning New York Times columnist Paul Krugman said the plan was a really bad idea: "...the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets."
Today he is joined by another Nobel Prize winning economist Joseph Stiglitz. Speaking at a conference in Hong Kong, Stiglitz also took exception to the idea that taxpayers will be used to ensure that those buying these toxic assets won't loose money. "Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."
And, there is no guarantee once the banks get these toxic assets off their books that they'll start lending again...what America needs to get the economy humming again.
Krugman writes there is a blue print for how America can work its way out of this banking crisis: "...there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books."