I suggest you read the Krugman analysis of Geitners book. I found it interesting and thank you for posting it. I've always felt the Stress Test (the name of the book too) was a bit gimmicky. So in that respect I'm in partial agreement with Krugman. I'm not a fan of Geitner. (Goolsbee was my pick)
I also was pleasantly surprised that Krugman takes on the issue of debt - or more specifically debt relief. I've never seen him give this issue this much ink. Is this new thinking by Krugman? If so I applaud the new direction - or at a very least a new emphasis. ........Unfortunately neither man - Krugman nor Geitner - address the real issue of how we amassed such a level of debt - that needed to be given relief. I'm fine with debt relief even as I think the easiest way to handle that is just through bankruptcy. Maybe that is Krugmans way too although he doesn't go into what his plan is/was. I'm guessing he would be more in favor of a government program to grant debt relief? I might have been in favor of any idea Krugman had for that debt relief - as long as it wasn't just moving the debt from the wreckless borrower to the tax payer.
Since this is about Geitners book - he must be faulted for the shortcoming of not addressing how that huge debt overhand happened. (I'm assuming since there was no mention of it in the Krugman thinking that it was just not there). Without understand that we overbuilt, over borrowed against housing industry - any fix whether stimulus or debt relief or something else will be minimally effective. This time the panic was different - because housing - the tool that has always gotten us out of downturns in a recession just wasn't going to work. Inventory, inventory, inventory. Quoting from the piece;
<<< The point, however, is that even if the panic can be contained, the problem of excessive debt remains. And that, arguably, is why the bank bailouts of 2008–2009 didn’t lead to a satisfactory economic recovery.What would it have taken to do better?
Unlike a financial panic, a balance sheet recession can’t be cured simply by restoring confidence: no matter how confident they may be feeling, debtors can’t spend more if their creditors insist they cut back.>>>
I agree with that last sentence, but.... Missed here is that borrowers DIDN'T want to spend more - NOT, that lenders wouldn't lend them more. More lending and more lending and more lending is what got us into the mess. The consumer was in a panic, they wanted to cut back and of course that is exactly what happened. How soon we forget! People were using their homes as an ATM machine recklessly buying stuff like yachts and new additions and trips to Europe and second and third homes that they couldn't afford unless prices - think Ponzi Scheme - kept rocketing skyward. Does anyone really think these consumers should have kept on borrowing at these levels? At higher levels? |
