Eating It

Atrios pungently describes the main objection to the Geithner plan:

Aside from setting up an overly complicated plan to try to disguise what they’re really doing, the utility of the Geithner plan rests (or pretends to rest, not sure) on one fundamental premise: that Big Shitpile is greatly undervalued by “the market” and that these mortgage securities really have expected revenues which justify higher prices. One could have reasonably believed this months ago, I have no idea why anyone would believe this now. The housing bubble burst, and now recession is here. There’s a lot of shit to be eaten, the question is who will eat it? Timmeh wants to make sure it’s not the banksters.

Although I’m less sure than Atrios that we should accept the market’s verdict on this stuff unquestioningly, he certainly might turn out to be right. But it’s worth noting that taxpayers are going to eat almost all of this shit no matter what happens. If Geithner’s plan fails, we eat it. If we nationalize the banks and become owners of all the toxic waste, we eat it. This financial crisis is going to cost the government a ton of money no matter what we do at this point.

Now, it’s true that if we nationalize we’d wipe out the shareholders of the bad banks. But although that’s the right thing to do, it’s also pretty small potatoes since stock prices have dropped so far that shareholders in bad banks have virtually no equity left at this point. (Sweden didn’t even bother trying to wipe out shareholders when they nationalized Nordbanken in 1992, for example. They just bought out the minority shareholders at the highly depressed market price.) What’s more, a lot of those shareholders are mutual funds and pension funds anyway. The amount of bankster wealth that would be wiped out in a nationalization is probably pretty small.

It’s not so much that I disagree with Atrios about this, just that I think he overstates the issue here. Nationalization would hurt bankers a little bit, and it would give taxpayers a bigger upside than the current plan. That’s good. But it would also be ungodly complex and create plenty of problems of its own. It’s worth avoiding if there’s another solution.

If Geithner’s plan fails because it turns out that the market price for all this toxic waste is really correct, then his stress tests will almost certainly show that Citigroup and Bank of America are insolvent. At that point, he’s out of options and it’s time to nationalize. Paul Krugman’s fear about Geithner’s plan is that “this will be the administration’s only shot,” but I think that’s wrong. In fact, far from making nationalization more difficult, its failure would make it both inevitable and broadly acceptable. All by itself, that’s probably a good reason to let Geithner give this his best shot.

One More Thing

And it's a big one. Mother Jones is launching a new Corruption Project to do deep, time-intensive reporting on the corruption that is both the cause and result of the crisis in our democracy.

The more we thought about how Mother Jones can have the most impact right now, the more we realized that so many stories come down to corruption: People with wealth and power putting their interests first—and often getting away with it.

Our goal is to understand how we got here and how we might get out. We're aiming to create a reporting position dedicated to uncovering corruption, build a team, and let them investigate for a year—publishing our stories in a concerted window: a special issue of our magazine, video and podcast series, and a dedicated online portal so they don't get lost in the daily deluge of headlines and breaking news.

We want to go all in, and we've got seed funding to get started—but we're looking to raise $500,000 in donations this spring so we can go even bigger. You can read about why we think this project is what the moment demands and what we hope to accomplish—and if you like how it sounds, please help us go big with a tax-deductible donation today.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate