Romer: Krugman's Criticism of Toxic Assets Program "Unfair"

Christina Romer, chairwoman of the White House Council of Economic Advisors, took umbrage with early critiques of the president's plan to buy up toxic assets from Wall Street banks on Sunday. Responding to New York Times columnist Paul Krugman, who declaring the blueprint an "awful mess," Romer called the administration's critics "just unfair."

Appearing on CNN's State of the Union, Romer pressed forward with promotion of the administration plan that would take a trillion dollars, culled from taxpayers and private investors, to buy up risky and distressed assets. When asked about the poor early reviews, she shot back.

"I think that's just unfair. Keep in mind why we are doing this. It's precisely because banks have these [toxic assets] on their books... We are trying to help the taxpayer by using the expertise of the market by trying to set the price for these toxic assets... It is going to be safe, we very much have the taxpayer's interest in mind, but we also very much have the interest in the economy in mind."

As Romer sees it, the taxpayer will be investing money -- in this case, a large portion of the $1 trillion -- but also receiving substantial opportunity for rewards. Removing the toxic assets from the banks' books will help get lending going again, the administration argues, and should those assets gain in value, taxpayers will stand to profit. But others aren't so impressed. And in his blog for the Times, Krugman took the administration to task for misunderstanding the key components of the current banking crisis.

"The Obama administration is now completely wedded to the idea that there's nothing fundamentally wrong with the financial system -- that what we're facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.... What an awful mess."

Comments

[ClarcKing]

Stop calling the U.S. Citizenry "taxpayers". The President needs to hear that he can't take the population's acceptance of this latest scheme for granted. There is simply no way to bailout the present crisis. Making the U.S. a "partner" with the criminal org. the "private sector" is perfidy. There is not enough money in the world to satisfy the demands of usury. The U.S. can't get into this entanglement as it takes away all other options, like the creation of the U.S. National Bank and leaving the Imperial/Global system. The U.S. is in a monetary financial derivative debt based Global economic collapse. The debt based Global engine is accelerating the contraction of the population's capacity to survive. The Three (B.G.S.)should resign. As per Mr. Lyndon LaRouche: Put the Fed into bankruptcy. All financial institutions that qualify can be put into bankruptcy protection. Create the U.S. National Bank. Currency and credits can be issued to the life sustaining sectors of the population. First priorities: Water, food, energy production and distribution. The public needs purchasing power now. Going on about Mr.G and the Wall St. cabal's problems is adistraction. Introduce high paying jobs into the population's physical economy now. Stop the foreclosures. Enact the Homeowners and Bank Protection Act. Expand Social Security and Medicaid, Hospital and Healthcare etc. This focus is necessary. We must motivate our political leaders to see the crisis in the population's terms not the Wall St. Cabal's.

[noesis]

"This proposal, like so many others emanating from the banking community, is based partially on the hope that if banks make things sufficiently complex and nontransparent, no one will notice the gift to the banking sector until it is too late. It appears as if they are at last getting the high market prices that they hoped they would get all along. But it would be a misnomer to call these market prices, since the government has taken away the downside risk. This proposal has, of course, the further advantage of drumming up support from the hedge funders, who so far have not received any of the TARP bonanza."

A Bank Bailout That Works - Prof. Joseph Stiglitz

http://www.thenation.com/doc/20090323/stiglitz/single?rel=nofollow

[Carolab]

Krugman on Democracy Now

http://www.youtube.com/watch?v=VuTR90VJxh0

[autish]

The criticism by Krugman is a little overboard. I read his article and my general take is that he is so wedded to nationalization, that he is not willing to consider an alternative. Is Gethner's plan the most effective? Probably not. Is Krugman's politically workable. No. So, what is Krugman's solution?

This is an interesting take on his arguments:
http://arbitgyans.blogspot.com/2009/03/tarp-version-how-many-has-it-been-again.html

BTW, I don't see this level of outrage at the complete idiocy of supporting GM, which is probably even more toxic than the toxic assets this scheme is buying..

[research]

The "toxic assets" aren't assets at all, they are Swaps insurance policies.
http://www.portfolio.com/views/columns/wall-street/2008/10/15/Credit-Derivatives-Role-in-Crash
http://www.huffingtonpost.com/users/profile/research?action=profile

[TAIsabel]

Why is Paul Volcker so quiet?

[detwob]

We need to nationalize the banks -- not just relieve them of the negative results of their piracy and plunder -- and turn them into public utilities.

[edwcorey]

"We are trying to help the taxpayer by using the expertise of the market by trying to set the price for these toxic assets..."

The "expertise of the market" is a joke. The only expertise the market has is short-term scam. The bailout is a scam perpetrated by Goldman Sachs, Paulson, Summers and Geithner. Relying on these insiders to fix the market is like relying on a goldfish to step outside the aquarium and clean the filter.

[freelyb]

Very apt comment and analogy.

[okayigive]

First of all neither Professor Romer nor Professor Krugman are slouches in their respected expertise in specific areas of economics. I respect Prof. Krugman, but is he really helping the situation by continuing to stir the pot instead of actually working with those he's so quick to criticize, just because their "school of thought" or approach is different than his. I vaguely remember Prof. Krugman turning down a position or should I say, reconsidered as Sec. of Treasury many years ago under another administration, because IMO he was not a team player. The bottom line no one can predict with any accuracy what will or will not work with all the known and unknown variables in play here and abroad. I appreciate another look at what should be done by Prof. Krugman and others, but I've noticed in each criticism no mention of part of the Sec. of Treasury's solution is overhauling the banking system and what potential impact it will have on any proposal being presented. Historically, our nation has had to do overhauls or creations of new centralized banking systems when dealing with various banking crises that impacted our economy. The economic crisis we are dealing with go beyond our borders with impact globally, thus, although some of these presented solutions seem simple and straight forward on surface; what is the overall impact of these "bad/toxic" assets that has poisoned the whole global economy with obvious unknown and known international as well as national players?

[TRex86]

It's not about the "toxic assets" per se. By cleansing those assets and moving them from the weakest to the strongest hands this strategy is intended to avoid liquidating the biggest banks. Simply put, those assets become valuable if the government says so. The real intent is to prevent the annihilation of another $20 trillion of wealth. Banks have been seen as perfect long term investments for "widows and orphans." Their debt and equity lard pension plans, 401K's and IRA's. Their debt is scattered throughout money markets and other financial instruments. When Lehman went down there was a run on maney markets. Killing the remaining financial institutions assures another 3-4000 points off the Dow and a Lost Decade/Great Depression scenario.
Obama isn't recycling Bush era policies. He IS looking out for the little guy. The Republicans have NOTHING to offer. It's OK that critics like Krugman hold Obama's feet to the fire. Democratsshouldn't become a rubber stamp for his policies. Where Krugman is absolutely right is that the biggest mistake now would be to back off federal spending and abort any chance of a lasting recovery.

[Isher]

I'm in total agreement with you. Meanwhile everyone's so concerned with the minute problem of AIG bonuses they're willing to scuttle the whole ship over it.

[research]

Lot's of us Liberals are also against the Bank pay offs.

You don't understand Swaps insurance,

and you obviously didn't read the article.

This is Massive Fraud, and a power grab.

We have the laws and the power to charge them with Fraud and RICO and get evey penny the have plus throw them in Jail.

Read the article, read my profile for more.

[RoloTomassi]

Wow...I did not expect this from this crowd--but it is surely happening. Here I see Krugman being verbally crucified for calling it as he sees it, and the Obamaloons [Obama supporters who get downright looney in their lack of logic in defending anything related to Obama] are applying the standard GOP mantra of "have faith in our Supreme Leader"!

Really, it's absurd; Krugman is offering a much needed perspective [clearly NOT biased by rightwing politics], so he should get the benefit of the doubt, or at least not be ostricized for not being a "co-conductor" on what he considers to be a runaway financial train that will likely derail to all of our detriment.

[MoeB]

I see your point, but you have to admit it's a *bit* hypocritical to say that people who may want others to reserve their judgment until AFTER the plans have either succeeded or failed, are downright "loony" to defend him while blindly supporting Krugman.

NO ONE here is saying have blind faith in our leaders. There are plenty of people posting here who are critical of Krugman now, but have been critical of Obama about things in the past (FISA, Iraqi troop levels, investigating the Bush administration). Just because some of us want to give the man's plans a chance to succeed or fail does not make us "Obamaloons". It makes us realistic. There is NO MAGIC bullet here, people! No one, not even Krugman, has a 100% absolute-success plan. Krugman thinks his plan is better...and for the record, I do like Krugman's plan a bit better than what I know of Geithner's.

[RoloTomassi]

The bottom line for all of this is that someone is going to lose money on those "toxic assets."

Of course there's no magic bullet--but how stupid do we have to be to see--as Krugman does--that all the effort is going into keeping the losses with the taxpayers?

And I'm sorry, defending anyone against valid criticism is LOONEY; and you should read through these comments more thoroughly and you'll see exactly what you're claiming isn't happening, which is being illogically defensive gainst valid criticism.

Because Obama is new at the job and has a difficult task at hand [actually it's many difficult tasks] does not negate the need for people with specific technical knowledge offering criticism and warnings about what they see as the wrong approach.

[okayigive]

It's kind of hypocritical to call some "Obamaloons" for questioning Krugman or supporting Geithner by giving him the benefit of the doubt don't you think.

[RoloTomassi]

No, I don't think so; if this were an isolated incident, then perhaps, but we see the same folks always admonishing others to just be quiet and support Obama because he's only been in office for a short time.

And I think that brings me to an improtant point: Krugman, or myself, or anyone else who criticizes these actions based on the evidence at hand is doing what we are supposed to be doing, which be ENGAGED in what is happening.

You can see the opposite effect in any open forum where completely uninformed people are spouting off as though they just arrived here from another planet--they are attempting to engage, but they are so removed from the process that they don't know what they are really saying and it is clear that they've not been paying attention to current events.

Politicians play this game of gotcha all the time, but we as concerned participants should be looking at this objectively as possible, and not be overly concerned with the politics of it. This issue is so serious in nature that to make a poltical game of it is extemely reckless, IMO.

[Dupree]

Since when did Krugman been anointed as the Seer of the future. I had no idea he was a Prophet that could see into the future. EXCUSE ME...for my utter disrespect of the "only one that knows economics." I personally think that Krugman is in love with his own thoughts that anyone that thinks differently than him....it is the equivalent of mutiny on the bounty...except...he is not presiding over anything...now is he? He can sit back and enjoy the luxury of pounding on other ideas by equally qualified economists that adopted a different school of thought than his. He offers his ideas as the only sure blueprint that is "guaranteed" to work...and any other plan that is contrary to his own..is "bound to fail" according to the Genie of Global economics. One problem...he is simply a man. A smart man with great ideas...but no Prophet here. None of these economists can guaranteee their plan will work ...time will tell like everything else in life. He needs to stop acting like he and he alone is the only expert in this situation...move over Krugman...for God did not break the mode with only you....there are others cut from the cloth of economics...equally as qualified as you....just made up of a different material....

[RoloTomassi]

I don't "blindly" follow anyone, particularly economists. I would really like to see just one example of this absolutist language from Krugman where he--according to you--portrays himself as the only economist that can offer any sound advice.

And do have a look at this issue within that particular group--economists--and you'll see that Krugman is merely the best known of them sounding the very same alarms.

[booker52]

I am inclined to believe that this a mistate. From what I have read this is just Bush's plan, cash for trash. The private investor who would buy up this mess isn't the one left holding the bag if these go south. We as the taxpayer would.

[GHARDY]

Paul Krugman, yeah we get it your really, really smart. Smart enough to know that the bulls@%& you spout out everyday will get you a T.V. gig on MSNBC. Mr. Krugman, with all your critiques, where are your solutions?

[edwcorey]

A critique is an implied solution. If you've actually read any of his critiques, he says why something will or won't work. When hearing any side of an argument, it's wise to consider the source. Summers and Geithner have historically been unreliable sources. Why should we believe them?

[junkgrl48]

Krugman's cruisin' for a bruisin'. His head is way too big after winning the Nobel. And I think he is mad at Obama for not picking him as his King of Economics. I used to kind of like his opinions, but we are in a crisis unlike any other--even the great depression. The economic models are not quite fitting this mess. He is undermining the President, and the confidence of the people. I always told folks that Obama's biggest troublemakers will actually be other Democrats. In congress, the urge to keep their butts in the cushy seats of congress overpowers the good of the people. Not in all cases, but many--example: These "blue dog Senators". Need choke collars on them.

[SouthernBlueBelle]

I think you hit the nail on the head.

[RoloTomassi]

I don't think Krugman is a political animal in any sense other than in the function of economic criticism--which is what he is paid to do at the NYT.

But throw aside the political elements for a moment and consider the possibility that he knows what he is talking about and that he's correct in his assessment; if that is the case--if I read you correctly--then you think he should just keep his mouth shut?

My fear about this--and I only know what I've read about it--but the general consensus outside of the WH is that a huge portion of these so-called "toxic assets" are worth virtually NOTHING.

If that's really the case, then Krugman has firm footing to make his criticisms, and probably more people should be raising the alarm. If this is the truth, then it cannot possibly undermine Obama, but it can definitively show that he has trusted the wrong people to make economic decisions.

If this crisis is a wide and deep as you seem to think, then there is no room for political posturing against people who are pointing out that the house is burning down, and Geithner's plan is like pi$$ing on the fire.

[KDH]

There sure are a lot of armchair critics out there. Are they privy to ALL the inside info that Geithner knows? Of course not ! I agree with Romer. Second guessing is unprofessional and very unfair. People like Krugman should know better. You can't compare Japan of the 90's to the USA of the 21st century. Things are far more complex now.

[ArticleFriendly]

Actually, I believe the solution is still as simple as it was back in the 1930's ..

spend, build, create jobs to keep people working and shore up businesses. Unfortunately there are those (just as in the 1930's) that are either paranoid of politicians or would rather see Obama fail (no matter the consequences to us) than help with a solution. Or they are just plain lazy, as it's always easier to critique someone that be a part of the solutions....

[Asmodeus]

"Krugman should know better"?!! Yes! He probably does! And do you know why?! Because he has a freakin' PHD in this stuff!! He's not just some hack out for the administration. He's the watchman who's spotted the iceberg we're about to irreparably grind hull on. And he's not alone.

[mervr1]

Having a PHd does not mean he is all knowing about everything regarding economics and I'm sure he does not have access to all the information out there that Geithner has.

Kramer is intelligent, but his job at the NYT is also to criticize to increase is own ratings.

Don't be fooled by everyone who has a PHd, because you think it makes them intelligent.

[Ozarks]

PHD in economics does not mean Kruger understands basic Accountancy 101 . He apparently is not listening to Obama. Obama's prime goal is to change the present financial system. Cleaning up "toxic assets" is not "buying into the present financial system" as alleged by Kruger. Obama and Geithner are buying real tangible assets and changing the financial structure . Kruger should use his apparent significant mathematical skills to cost out or "value" toxic assets rather than be a critic with allegations that don't hold water. kruger is silent to the real problem, pricing and valuing real tangible assets but apparently that is beyond his alleged "expertise"

[UNCLEJOE]

--The only Sane and logic plan that All American working Middle class citizens are talking about is to bailout the home owners and the banks will get their toxic accounts remedied and they won't need to be bailed out.

If anyone would look up my profile comments of the last month, they would see the same plan advocating by bailing out the workers instead of the banks as a real Recovery Plan to boost our economy toot sweet.

But unfortunately, the bankers are in control of our government through Geithner the Federal Reserve System's protegee' that nurtured and groomed Geithner from puberty. Timmy is obligated to take care of his Fed Friends first, last and always.

If Obama does not see the light soon, and ends up giving this Trillion to the bankers no matter the pre-conditions, his career is doomed, and that is how the Republicans continue to shear the golden fleece, the USA until we are all slave laborers with no civil rights.
I hope I am dead wrong, but the writing is on the wall for all to see.

Only a real Peoples' Revolution can bring about a bailout for the working Middle Class instead of pouring billions into the pockets of the Federal Reserve Gangsters.

[gopSTEALSyourTAXmoney]

"bailout the homeowners"...
You are right on about that!

[ArticleFriendly]

I'm not sure how that makes any sense except as a quick fix for homeowners... Give the money to the homeowners, and then the banks fail, then businesses fail (only worse than they are now) cause they can't get loans to purchase stock or pay employees, so then everyone is out of a job and living in dumpsters. But I suppose homeowners can dream of the home they used to have while scrounging for food ....

[Dan Forth]

Certainly early on much of the problem was that folk sold insurance that the mortgages would not fail, and then sold insurance on the insurance, and then more insurance to cover that, and so on so that a hundred dollars of mortgage represented ten thousand dollars in "insurance".

If early on the Government just bought all the mortgages, at market value, then the "insurance" problem would go away as they would all be "paid off", or those who bet on the riskiest stuff would just lose. Then those mortgages could be delt with slowly and sanely, without destroying the entire economy. But at the time that would have easily worked, Bush was in charge and sane was not what they wanted.

It is too late for that in most cases, as much of the damage is already done, the insurance house of cards is already atumble and dramatic action is needed. The best thing to do, barge in, grab the system, save what was possible and toss the money folk aside, would be illegal and they would certainly take revenge in the courts. So instead what they are doing is probably just as illegal but the money folk like it and so will go along.