Monday, March 23, 2009

Steve Pearlstein on Krugman Analysis: Flat. Out. Wrong.

Washington Post business columnist Steven Pearlstein vehemently disagreed with Paul Krugman's analysis of President Obama's plan on MSNBC today.

Andrea Mitchell: Let me ask you about Paul Krugman in the New York Times today, because he, really even before the details were announced, he wrote, "The plan to use taxpayer funds to drive the prices of bad assets up to 'fair' levels... but the Geithner scheme would offer a one way bet; if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets."

Steve Pearlstein: Andrea? Flat. Out. Wrong. There is risk to the equity investors here. Obviously he either didn't understand the plan or didn't read it very carefully. Now do we limit their risk? Yes we do. Under the plan, yes we would and the reason for that is because if that wasn't necessary, then these markets would be working already. Clearly they're not working so we need to do something. You might call it a subsidy or you might call it providing some insurance, so yes we're doing that to jump-start these markets. And the hope is, that once these markets start to operate, the government can begin to withdraw, but right now you need something to prime the pump because there's no water coming out.

1 comment:

Fraulein said...

I have to say I'm still trying to wrap my mind around this whole thing. Not sure who is right!