The No Deal

I think Paul Krugman has this dead to rights:

I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.

As I posted earlier today, it seems all too likely that a “fair price” for mortgage-related assets will still leave much of the financial sector in trouble. And there’s nothing at all in the draft that says what happens next; although I do notice that there’s nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?

Magic. It’s been the Bush administration’s plan on most things, why would this be any different?

But the real reason to oppose this deal is in Krugman’s penultimate paragraph:

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

Exactly. The plan as it stands basicall involves the government giving more than half a trillion dollars to banks, no questions asked, nothing in return for your average Joe and Jane except for the possible prevention of the collapse of banks — and that’s not guaranteed.

This looks like a plan guaranteed to help out a lot of rich folks…but not much else. We can do better than that. I don’t know if the Bush administration can do better than that, though.