“The Public-Private Investment Program [PPIP] is a really bad program. You’re really bailing out the shareholders and the bondholders. Some of the people likely to be involved in this, like Pimco [Pacific Investment Management Co.], are big bondholders.
-Joseph Stiglitz
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First Krugman, now Stiglitz; let’s call it “When Nobel Prize winners agree with Barry” day.
Over the past few months, I have criticized CEA director Lawrence Summers “Sacred Cows/Save the Banks” approach, rather than a save the financial system approach. And the mad attempts to bailout the bond holders also came in for some harsh words. Joseph Stiglitz agrees:
The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”
The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.
“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.
The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”
Rather than continually buying small stakes in banks, weaker banks should be put through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.”
I wonder what will happen if or when the public realizes the enormity of the theft that has taken place right out in plain view, before their very eyes. Don’t know? Don’t care? Sheeple? I simply don’t get the complacency . . .
The other issue according to Stiglitz is also something we’ve touched upon: “America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street. Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
I could not agree more . . .
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Previously:
Larry Summers: Wrong Man for the Job (April 4, 2009)
http://www.ritholtz.com/blog/2009/04/summers/
Why Creditors MUST Suffer Also (April 5, 2009)
http://www.ritholtz.com/blog/2009/04/why-creditors-must-suffer/
Source:
Stiglitz Says White House Ties to Wall Street Doom Bank Rescue
Michael McKee and Matthew Benjamin
April 17 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=afYsmJyngAXQ&
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