What does the Geithner plan mean?


My piece in today’s Fin is about the Geithner plan to bail out US banks. I’ll post the whole thing tomorrow (given that the Fin is pay-only, I wait until today’s issue is off the stands), but there’s one point I want to stress.

Most of the debate about alternative bailout plans has been framed around the equivalent pair of questions: liquidity crisis or solvency crisis? and book value or mark-to-market? The Geithner plan assumes that the true long-term value of ‘toxic’ [1] asset-based securities greatly exceeds their current market value, and that the banks are therefore solvent but illiquid. Critics like Krugman don’t buy this.

But the really big question, it seems to me, is what kind of financial system will emerge from the current crisis. Geithner, Summers and Bernanke clearly envisage something very like the pre-2008 system, with a few less players (all the better for Goldman Sachs!) and some tighter regulation to prevent unfortunate occurrences like those of the last year. The advocates of nationalisation implicitly accept that something very different is going to be needed; not permanent public ownership, but a much smaller, more conservative and less profitable financial sector, providing necessary services in the manner of other utility and infrastructure businesses. An obvious dividing point is financial innovation: advocates of Geithner style bailouts are much concerned to avoid discouraging financial innovation, while the critics see uncontrolled innovation as a large part of the problem.

fn1. A side issue I’ve been meaning to raise for a while concerns the salience of “toxics” in US culture generally. As an example, food safety seems to be regarded as a major environmental issue in the US, while in Australia it seems to me to be seen as a minor local government issue, with the archetypal instance being dirty restaurant kitchens suitable for hidden camera current affairs exposes. But it’s hard to tell if my perceptions on this are accurate.

The earth shape controversy revived (earlier posted at CT)

Just about everyone has already piled on to the latest development in the George Will saga – the Washington Post’s belated publication of an opinion piece by Chris Mooney and a letter from the World Meteorological Association pointing out (very politely) that Will was lying in every paragraph of his notorious piece on global warming. And just about everyone has the same take: in the absence of a retraction or correction, the Post is taking the view that Will is entitled to his own facts. (Here’s Matthew Yglesias, for example, and Mooney has a huge list of links at his site).

The absolute refusal of the Post to take a position on the truth or falsity of what it publishes (along with the continued scandal of anonymous sourcing Can't Buy Me Love move

) leads me to a steadily more negative view of the question of whether we actually need newspapers and whether we should regret their seemingly inexorable decline. The standard claim is that without reporters, we in the blogosphere would have no material to work on. But Will’s recycling of long-refuted Internet factoids (something very common among rightwing pundits in particular) shows that, in important respects, the opposite is true.

More importantly as far as political and business news goes, there is almost always someone with an interest in having any given story published. If newspapers are unwilling to take a stand on which stories are true or false, their only function is that of gatekeeper – determining which stories see the light of day and which do not. The potential for corruption in this role is clear, and the reality was obvious particularly in relation to the Iraq war.

Update Lots of readers have inferred that I welcome/wish for the demise of newspapers or opinion columnists. Actually, having written (and been paid for) an opinion column in a national newspaper for the past fifteen years, I am deeply ambivalent on the subject. On the one hand, the deplorable handling of issues like climate change (particularly in opinion pages, but to a significant extent in news as well) the early years of the Iraq war (if anything worse in the news pages than the opinion section), and the ‘inside baseball’ approach to political news in general leads me to think we would be better off without them. On the other hand, there’s obviously a lot to lose here, and it’s not clear how, if at all, some of it can be replaced.

Of course, what will happen will happen, regardless of what I think about it. But maybe if those making decisions about how newspapers are run think more closely about episodes like this one, they might see the need for change, and that change might enhance their chances of survival.

The uselessness of additional action under the CPRS

There was a bit of dispute a month ago over the claim, made here and elsewhere, that the design of the CPRS made both voluntary action to reduce CO2 emissions, and government initiatives such as the Rudd government’s home insulation scheme, have no effect except to reduce the price of permits.

The issue seems to have been settled by this Victorian government brief, leaked to the Age

, which states:

The Victorian government’s policies to cut carbon emissions will make no difference in achieving national greenhouse targets …

The leaked brief, obtained by The Age newspaper, says the government must rethink policies including subsidising solar farms and buying hybrid cars for its fleet because they will not assist in meeting targets in the proposed federal Carbon Pollution Reduction Scheme (CPRS).

The Rudd government can and should fix this.

My election night

I was at the tally room on election night, in time to hear Lawrence Springborg’s concession speech and see Anna Bligh claim victory as the first woman to be elected as a State Premier. Not that I’m an election tragic, but we were having a farewell dinner for a friend at Southbank, and the Convention Centre was only short walk away, so we went on to take a look. The tally room itself was a little disappointing as the old days of a gigantic board with manually adjusted vote counts for every seat are gone (or maybe only ever happened at the Federal level). Instead we got a big screen with regularly updated results including (unofficial, I assume) projections of the preference distribution: more informative, but not much different to what we could have got at home.

The result was a much bigger majority for Labor than appeared likely, even though the two-party preferred vote (to the extent that this concept is meaningful when a lot of independent candidates are actually elected) was quite close. One possible interpetation was a highly effective marginal seats strategy, but that doesn’t appear to be the case.

Given the government’s vulnerabilities and what I thought was a more professional campaign from the Opposition, the result gives some support to the idea that Labor has become the natural party of government in most Australian states. Nevertheless, no party is guaranteed of office, and hopefully a stronger opposition will keep the Bligh government on its toes a bit more than in the past.

Guess Who’s Coming to Dinner movies

Election tomorrow

After a fairly somnolent campaign, the LNP is going into tomorrow’s Queensland state election with a narrow lead in the polls. I haven’t paid much attention, since the capacity of state governments to make a difference, always limited, has been reduced further by the financial crisis. If I could choose an outcome it would probably be a minority Labor government, relying on a Green independent or two for its majority. As regards a change of government, it’s always beneficial to have alternation of power in a democracy. I’m not at all impressed by the apparent quality of the alternative government, but it’s more convincing as a united party than as the chaotic rabble that went under the name “Coalition”. The Bligh government has some reasonably strong performers (Bligh herself and Paul Lucas for example), but there have been plenty of duds or worse. And the involvement of proven disasters like Mike Kaiser in the campaign was a big mistake.