Geithner's Plan To Save Wall Street

We are approaching a moment of truth on the proposal for the Treasury to buy up all these 'toxic assets'.

We've been told that failure of Geithner's plan could well destabilize the entire economy. Pension funds and insurance companies, in particular, might suffer.

On the other hand, since the toxic assets are likely worth not nearly so much as people would like to believe, the program would likely be a staggering waste of money. Warren Buffett is right - inflation of the most pernicious sort is likely to result. Moral hazard would be permanently lost as well, turning Wall Street into the biggest welfare tar baby the world has ever seen.

In general, people shy away from the wholesale destruction of financial institutions that mass bankruptcies would cause. On the other hand, the fastest road to recovery usually involves such wholesale destruction, and as quickly as possible too, so as not to waste time. Lack of nerve usually means a torpid recovery (witness Japan's 'Lost Decade').

So, I join the left-wing populists and the right-wing dittoheads wishing the Obama Administration to fail in this particular venture. The stimulus is OK - just not this monstrosity.

Interesting large article by Matt Taibbi:

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.