mercredi 8 octobre 2008

Talking down Maddow -- Paul Krugman on the Bailout

So, I found this video this afternoon, looking for something entirely different (video of Sarah Palin's Pensacola, Florida rally October 6th). It is an echo of a conversation I had with Cowtown and some others this morning on CHAOS. Actually, it was a conversation that turned into my performing a rant, which turned out to be me expressing my inner Paul Krugman.

This is recovery?
Paul Krugman on with Rachel Maddow

I guess I have been listening to him more carefully than I imagined, to have been able to get so many of his points.

This should encourage us all to give up our lives and becomes student of politics and economics. We might actually eventually learn enough to grasp what the pundits are saying, before they say it.

If you don't believe me, ask Cow.

The following is a transcript of Krugman's answers, for you cut and paste pleasure.

Rachel Maddow began by asking if the the bailout worked. Would it have been worse with it, or without it. Krugman laughed wryly and said, "Both." He went on to say:

Krugman: A lot of people are looking at the Dow, and it gets them really scared, but the professionals are lookng at the credit markets and that has them even more scared. The truth is what happened to the stock market is not that important. It's just kind of an imperfect reflection of the platonic truth of what is happening in the credit markets, which is really bad. They are completely frozen. The passing of the bailout didn't do anything.

Maddow then asks what are the indicators that we non ecnomists should be looking at to determine how things are going.

Krugman: Well, you know, there are, it's getting a little, ah, we're all kind of scrambling now beause it's hard, we are not used to tracking this stuff. I look at a lot of the interest rates on short term US government debt, 1 month, 3 month Treasury bills, the lower they are the worse things are. If people are piling into these things because nothing else looks safe to them, then this is a bad sign, and they are very low, they are about as low as they were in the worst of the crisis last week, so that's really, really bad. You kook at, I'm going to get too technical here, but there are a bunch of indicators, and they all failed to improve after the bailout was passed, so I thought we would be back to the drawing board in a couple of months, and now I am wondering if that's more like a couple of weeks, or maybe a couple of days.

Maddow then asked, "Should the bailout have given more confidence to the credit market? Should it have worked better?"

Krugman: Well the trouble with the bailout plan was it never really made sense, and they never really explained why it would work but the story was, "Trust us, this will work, and people will believe in it, and it will be a self-fulfilling prophecy," and none of that happned. Um, Some kind of bailout is needed. I think what they really need to do is go back to the drawing board. But, uh, this is a bad scheme and, erf [he actually shivered], it, I'm pretty angry because it was clear from day one, when this thing started being discussed, that they did not have a clear view of why this thing was supposed to help, and they stuck us with it, and it would have been very dangerous not to pass it in on Friday because who woud have known what would have happened?

How, Maddow asked, would the next bill be different:

Krugman: Well, this grant, this was "We're going to buy some of this toxic waste off the banks, and that's somehow going to solve the problem", and it wasn't clear why that would help. Uh, what we really need is, we need, well, capital, we need to put money in the system and, in effect, what always happens in a financial crisis is a partial nationalization, partial and temporary nationalization of the financial system, and that is, I, you know, I predict with almost 100% confidence that is how it will end, ah, but the Paulsen Treasury wasn't willing to talk about that. So that, something which puts money in, something where the US government is providing cash and taking partial ownership shares in return, is the wasy it's going to have to go, and the question is how long before they are willing to do that, and at the rate things are going, it might not be very long.

Maddow finished by asking how long it will be before political reality catches up with economic historical reality.

So here I got it a little wrong. I said Obama would essentially govern, from immediately after the election, through the congress; Krugman sees his team moving right into the treasury. I'm good with that:

Krugman: You know, I am having fantasies right now [so am I! so are we all!] that as soon as the election is over, we can't wait until January 20th, we might have to have, in effect, the incoming Obama team move into the Treasury and start coordinating the rescue because this is going to be a very bad transition if we don't do anything until we have a new administration.

From the sage's mouth.

Maddow wasn't down off the ceiling, but it helped a little to hear about a new team in the Treasury.
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