I have been worried about the possibility of private sector manipulation in the Geithner plan, as outlined by Jeff Sachs and others. I’d like to make sure the plan is protected from the worst of these outcomes.
But overall I have been influenced by many of your arguments on this policy. For one thing, I haven’t been able to come up with a better idea and if we do nothing the government is already on the hook for all or most of the liabilities of the banking system.
Everyone is writing about how private banks might game the Geithner plan, but I should add that the plan is an instance of President Obama gaming Congress. In essence, the FDIC is adding leverage to the American economy without receiving any additional Congressional approval. There is always a chance that leverage goes bad and someone has to come up with the money. As with quantitative easing (i.e., have the Fed buy up lots of exotic assets with newly created money), the government is running a kind of implicit fiscal policy without getting formal approval of Congress.
Don’t get me wrong — I have much more faith in the Obama administration, the FDIC, and the Fed than I do in Congress. But I wonder where this process will stop and at what point it becomes unhealthy or perhaps even verging on unconstitutional.
The sad thing is this: maybe Congress prefers not to be directly responsible for much of what is going on.
Follow Blog War over the federal stimulus package:
- Monday, April 6, Brad DeLong: The Stimulus Package: Like the Housing Bubble, Only Better
- Monday, April 6, Tyler Cowen: Good Policy, Bad Timing: How the Stimulus Package Could be Smarter
- Tuesday, April 7: Tyler Cowen: Stimulus Won’t Help U.S. Industry Restructure Itself
- Tuesday, April 7: Brad DeLong: Arguments Against Fiscal Stimulus Exhibit a “Deep Incoherence”
- Tuesday, April 7: Tyler Cowen: It’s Easier For the Government to Print Money Than to Spend It; Or, Monetarism Rulz!
- Tuesday, April 7: Brad DeLong: Fiscal Stimulus Beats Doing Nothing — By a Lot
- Wednesday, April 8: Brad DeLong: Why the Geithner Plan is Good Medicine for the Banking System
- Wednesday, April 8: Tyler Cowen: The Geithner Plan: An End Run Around Congress
- Thursday, April 9: Tyler Cowen: Coming to Grips With the End of Debt-Fueled Consumption
- Thursday, April 9: Brad DeLong: Yes to Economic Restructuring; No to Universal Bankruptcy
- Friday, April 10: Brad DeLong: Final Thoughts: What Would Turn Me Against Fiscal Stimulus
- Friday, April 10: Tyler Cowen: The Economy is in Too Much Trouble for Stimulus to Help
