Friday, March 27, 2009

Obama's Used Car Salesmen

I wouldn't buy one from Larry Summers. I might take a chance on Tim Geithner but have a good mechanic check it out first.

As the President's top two economic advisers keep offering us financial vehicles for the rocky road ahead, they just don't inspire confidence in survivors still stunned by the crash of those in which the two of them had so much involvement over the past decade.

Summers tell us the Administration's new toxic asset plan will create "better functioning capital markets," but Paul Krugman points out:

"Leave aside for a moment the question of whether a market in which buyers have to be bribed to participate can really be described as 'better functioning.' Even so, Mr. Summers needs to get out more. Quite a few economists have reconsidered their favorable opinion of capital markets and asset trading in the light of the current crisis.

"But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic."

Just so. The Treasury Secretary's Congressional testimony about the proposal to regulate non-bank financial institutions reflects a curious ambivalence, recognizing damaging excesses but hesitating to ban much of Wall Street's gambling.

In answer to a question, Geithner said that. "my own sense is that banning naked credit default swaps isn't necessary and wouldn't help," that it is "terribly hard" to differentiate between a legitimate hedge and a pure speculative bet.

The recent stock market surge only adds to the unease. After weeks of sheer panic, are the insiders only grabbing at the chance for cashing in on the huge but temporary infusion of free money?

With so much at stake, the Obama Administration might help the case for its recovery proposals by letting us hear more from Paul Volcker and other respected Wall Street outsiders in a situation where credibility is critical.

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