Wednesday, February 11, 2009

Geithner's Bank Bailout

As most of us are aware Timothy Geithner has announced his plan to save the banks:

What we have is essentially a bailout of larger proportions than what has already come. It looks like there will be more accountability, although Geithner's plan is still far from clear. Indeed the lack of clarity is the main criticism against him.

Some folks are defending the plan:

I'm not, however, sure what to make of this plan. I get the idea behind it. Businesses need money to hire, consumers need money to spend, and the banks are not lending, give them money force them to lend and get the economy moving again.

This essentially means that our new administration has a two-pronged approach to the economy. Pump money into job creation and pour money into banks to get credit working again.

There are reason why both these approaches might fail. But let's look more deeply. What if they succeed? What will be accomplished? If we get credit flowing,we will have the same problem that caused this crisis: we will have people unable to pay back their credits and banks then losing money. In short, we will have the same problems in the future. All we are doing is postponing economic doom.

The stimulus is a better idea, but currently I fear it is too watered down, too much of the needed stimulus amount has been removed.

But no matter. Suppose that the stimulus does boost the economy, suppose we get credit flowing again. Is this a permanent fix? Or are we merely temporarily stopping the bleeding without healing the wound?

These are pretty standard old hat washington insider policies. But then agan, Obama loaded his cabinet with Washington insiders, so we really can't expect new ideas.

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