Monday, February 2, 2009

Lemon Socialism

Paul Krugman writes in the NYT about the bank rescue plan shaping up from the Obama Administration that rescues the banks with taxpayer money but has the rewards going to the banks and its executive.

Just to be clear, I’m not talking about the Obama administration’s plan to support jobs and output with a large, temporary rise in federal spending, which is very much the right thing to do. I’m talking, instead, about the administration’s plans for a banking system rescue — plans that are shaping up as a classic exercise in “lemon socialism”: taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right.

When I read recent remarks on financial policy by top Obama administration officials, I feel as if I’ve entered a time warp — as if it’s still 2005, Alan Greenspan is still the Maestro, and bankers are still heroes of capitalism.

“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” says Timothy Geithner, the Treasury secretary — as he prepares to put taxpayers on the hook for that system’s immense losses.

I agree that something is wrong here. The citizens paying the taxes gets screwed either way. This is conventional 'neo-liberal' economic theory and practice, and it stinks. Let's have some real change here.

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