(Feb. 27, 2016) Eight years after the financial crisis broke out in the United States, there is as much confusion as ever regarding what reforms are appropriate in order to minimize the recurrence of such crises in the future.
Secretary Tim Geithner announced today the long-awaited details on the financial repair plan that he promised on February 10. Some reactions have been negative, both from the left and the right. Paul Krugman, for example, argues that the plan does not go far enough in forcing banks to recognize the fallen value of their assets.
But the stock market was “dazzled” by Geithner’s explanation of the PPIP proposal, with prices up strongly. The plan has no shortage of defenders. Brad DeLong makes some good points, and responds to Krugman. The Geithner Plan is an improvement over the Paulson plan in that when “toxic assets,” now called “legacy assets,” are bought from the banks, their prices are set by private bidding (from hedge funds and private equity companies), rather than by an overworked Treasury official pulling a number out of the air and risking that the taxpayer grossly overpays for the assets. On similar grounds, Nouriel Roubini has surprised the cynics by giving (qualified) support for the plan, and points out that its design appears to follow a recent proposal by my Harvard colleage Lucien Bebchuk.
Some observations on the plan announced by Treasury Secretary Tim Geithner yesterday:
Clearly we need to hear more details. I sympathize with Geithner, who has only been in office a couple of weeks. He has had to take over in the middle of the worst financial crisis in 77 years, at the same time that he must personally fill out the reams of forms that it takes to get confirmed by the Senate (like all such new appointees) and to fill lots of positions throughout the upper levels of the Treasury. But the American public will demand further elaboration on his plan soon.