In a New York Times op-ed piece titled "Obama's Ersatz Capitalism," the economist Joseph E. Stiglitz writes:
In theory, the administrations plan is based on letting the market determine the prices of the banks toxic assets including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets....Consider an asset that has a 50-50 chance of being worth either zero or $200 in a years time. The average value of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is worth. Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!...Some Americans are afraid that the government might temporarily nationalize the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well.... What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a partnership in which one partner robs the other. And such partnerships with the private sector in control have perverse incentives, worse even than the ones that got us into the mess.
Paul Krugman has been making the same point in his Times column, but no one in the White House seems to be listening to these two Nobel Prize winners. The Treasury Secretarycan't even bring himself to say the word "nationalize." ThePresident's plan, aptly described by Stiglitz as a Rube Goldberg device (the kind "Wall Street loves clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets"), is exactly what you would have expected from another Republican administration. This is not change you can believe in, or any other kind of change. It is anotherdodgy improvisation by an economic teamthat desperately wants torestore the status quo ante. Aswith debates about health-care reform, theintellectual panic triggered by words like "nationalize" and "socialize" is short-circuitingrational discussion.
