Posted on 09/26/2008 4:52:09 PM PDT by TigerLikesRooster
STIGLITZ CALLS BUSH BAILOUT PLAN "MONSTROUS"
Wednesday, 24 September 2008
(Ed. Note: Everybody has an opinion about the current Wall Street meltdown and how best to deal with it, but perhaps the opinion of a Nobel Prize winner in economics should carry special weight.
So it is interesting that recent remarks by Nobel Prize winner Joseph Stiglitz to European reporters did not get much play in the U.S. media. Could it be that the U.S. media, so comfortable with Wall Street’s crony capitalists, is part of the problem, too?
This report on Stiglitz’s analysis is reprinted from MercoPress .)
Economy Nobel Prize Joseph Stiglitz last weekend said that the current bail out plan for the U.S. financial sector would be "monstrous" for US taxpayers.
"This plan is nothing else but a short term solution," said Stiglitz in a Sunday interview with Germany's Frankfurter Allgemeine Sonntagszeitung (FAS). "We're turning risk investment funds into the hands of taxpayers," pointing out that since no private investor wants to take responsibility for "risk investments, we're simply wall papering them on to the taxpayer, and this is monstrous".
According to Stiglitz the current crisis marks the end of a "disastrous economic model" and the end of the ideology "by which free and deregulated markets always function." As a consequence of the current situation the US financial system as well as the US government "has lost all credibility."
Stiglitz argues that to rescue the system and bring stability to markets, the US government is planning to buy from banks and financial institutions all "non liquid" assets that nobody wants and were the origin of one of the greatest and deepest crises ever faced by Wall Street and the US economy, the Great Depression of 1929.
For this reason, the Bush administration has requested from Congress US$700 billion for a special fund to purchase these assets and bring stability to financial markets. However, private estimates believe the cost of the final bill could be well over US$ one trillion.
But Stiglitz, who is currently a professor at the Columbia University in New York, the Bush proposal will not help solve the problem: "there's every chance that other banks could also be affected."
Stiglitz believes the root of the current situation is the sub prime housing problem and that government assistance must be directed at the mortgage problem. "This is only the beginning of the crisis," he said, and predicted that the US is on the brink of a prolonged recession.
The solution is not bailing out banks by eliminating "toxic" debts, but rather helping home owners renegotiate conditions of their mortgages.
Still, US public opinion seems to be split regarding the rescue plan announced by Treasury Secretary Hank Paulson and which is currently under discussion in the US Congress.
A poll from Zogby International shows that 46% support the package and a similar percentage is against it, while 8% are undecided.
But opinions coincide regarding the depth and extent of the crisis: 70% see it as a long-term threat and only 24% believe it's a short-term situation. An overwhelming majority, 84%, are convinced that it's only a matter of time before other investment banks and some of the US main financial institutions collapse in the coming months. The Zogby opinion poll has a plus/minus 2.1 percentage points error.
In spite of the urgency requests from President Bush and Secretary Paulson, Congress is taking its time and the opposition Democrats insist in including aid for families affected by housing foreclosures and limits on the “golden parachutes” awarded to CEOs for mismanaging their firms.
SOURCE: MERCOPRESS
GOP got it right.
“Nobel Prize”, hope his was based on real economics and not psuedo-science like algore’s
Works good in theory, but who gets to renegotiate? I'd like a lower principal and lower interest rate on my mortgage. Sure I can afford it, but still, if the guy next door gets to reduce his mortgage obligation by $100,000 because he was stupid enough to buy a house he couldn't afford, why shouldn't I be entitled to reduce my mortgage obligation even though I can afford to make my payments and I didn't buy a house that was bigger then I could afford?
If Joe Six pack gets his mortgage renegotiated to reduce his principal and interest, then I want the same deal.
Nobel Prize is a joke. Arafat, Gore............
Stiglitz was an “anybody but Bush” stooge in 2004. He’s an economist, and generally knows what he’s talking about, but he is no friend to Republicans.
Interesting that we’re getting economist after economist calling the $700 billion bail-out a piece of crap. Yet the Rats are going against common sense.
Thanks for the post.
yes, but are we surprised?...no...he's a globalist afterall....
Good to know who was maligning him, then I know if he was on the mark. Thanks.
Can someone answer a question for me or correct me if I’m wrong?
Fannie and Freddie sell these subprime loans to investors.
If the loans go in default are the investors backed by a guarantee by the Federal Government?
Thanks in advance..
It doesn't take a Ph.D in economics to be "right" on this one. Stiglitz loves to tell the Euro audience anything bad about Bush/Repubs.
It would be fair if they extended the term for payback. If they lower the payments through extending the term, then everyone has to give a bit, EXCEPT the taxpayer. The real issue is finding the payment that WILL be paid by the borrower. People renegotiate on this basis all the time. Likewise, people renogotiate ARMS and interest only’s all the time. That’s the point, you’re only supposed to use an ARM if you intend to be in the house 3 years or less. The interest only loan is the same, but it’s because you expect an income increase in the very short term.
At that point, the homeowner is either selling or renegotiating for a fixed rate at a term he can afford.
No friend of Republicans?
He loathes Conservatives. He loathes Reganomics.
In a column he penned for The Guardian UK, Stiglitz wrote:
“Today, in contrast to the right, the left has a coherent agenda, one that offers not only higher growth, but also social justice. For voters, the choice should be easy.”
Stiglitz is an Obama boy, 100%
For instance the problem of dealing with folks who are currently in default because they cannot manage current rates provides an interesting challenge. There are a few choices:
1. Renegotiate interest rate and principal outstanding to reflect what the current occupant can pay and what the market currently says the house is worth (rather than its Greenspan housing bubble peak price).
2. Punish the deadbeat by throwing him out, repossess the house and sell it, at a very large loss for what it will get at auction further incurring the loss on the paper you are going to have to buy back to bail out the bankers.
3. Punish the deadbeat by throwing him out, repossess the house and keep it on inventory until you can sell it through a realtor in a normal fashion, leaving it to sit unoccupied where it will rot and be vandalized, thereby losing all value, destroying the neighborhood, and costing you even more in taxpayer bailouts.
Option 1 would seem to minimize the financial losses all the way around, but the so-called free market solution preferred around here would execute #2 or #3 and ruin everybody. Unfortunately Stiglitz goes for opion 1, which makes him a communist. I predict that I will also be called a communist within 10 posts of hitting the post button.
That is why he is a communist like me. I think Travis is a communist too. I don't know whether you have been called a communist yet. I predict it, but just haven't seen it actually happen.
There you go. I don’t keep up with his every comment, but this guy is pretty easy to figure out.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.