Editor's note: The following interview by Democracy Now!'s Amy Goodman with economist and NY Times columnist Paul Krugman continues AlterNet's coverage on this crucial political moment for the Obama administration and the country on the issue of what to do with the collapse of the financial and banking industries. Yesterday on this topic, AlterNet ran an editorial and articles by Bill Greider, Matt Taibbi and Frank Rich. In the coming days, look for more coverage and articles about activist campaigns sprouting up on this issue.
Amy Goodman: Treasury Secretary Timothy Geithner has unveiled the Obama administration’s plan to finance the purchase of up to $1 trillion in so-called toxic assets from banks and other ailing financial institutions. The plan relies on private investors, namely hedge funds and private equity firms, to team up with the government to relieve banks of assets tied to loans and mortgage-linked securities. There have been virtually no buyers of these assets thus far because of their uncertain risk. As part of the program, the government plans to offer subsidies in the form of low-interest loans to coax private funds to form partnerships with the government to buy troubled assets from banks. This is intended to unclog the balance sheets of banks and allow them to resume normal lending.
Also, the Obama administration this week is expected to announce new proposals for financial regulation, executive pay, accounting standards and other issues, ahead of the G20 summit in London on April 2nd. The new economic proposals come as Congress is to begin debating the administration’s $3.6 trillion budget proposal for next year.
Meanwhile, public outrage over the AIG bonus scandal has further undermined support for Timothy Geithner as Treasury Secretary. AIG is paying out over $165 million in bonuses after receiving a $170 billion taxpayer bailout. Geithner has been criticized in Congress and elsewhere for not doing more to block the AIG bonuses and his overall response to the financial crisis.
In an interview broadcast [Sunday] on 60 Minutes, President Obama expressed strong support for Geithner. He was interviewed by 60 Minutes correspondent Steve Kroft.
Kroft:Your Treasury Secretary, Tim Geithner, has been under a lot of pressure this week, and there have been people in Congress calling for his head. Have there been discussions in the White House about replacing him?
President Obama: No.
Kroft: Has he volunteered to or come to you and said, “Do you think I should step down?”
President Obama: No, and he shouldn’t. And if he were to come to me, I’d say, “Sorry, buddy, you still got the job.” But look, he’s got a lot of stuff on his plate, and he is doing a terrific job. And I take responsibility for not, I think, having given him as much help as he needs.
Goodman: Geithner is scheduled to testify before the House Financial Services Committee on Thursday about overhauling financial regulation.
Paul Krugman is a Nobel Prize-winning economist, professor of economics and international affairs at Princeton University, and a columnist at the New York Times. His latest book is The Return of Depression Economics and the Crisis of 2008. His column in today’s Times is headlined “Financial Policy Despair.” He joins us on the phone from his home in New Jersey.
Welcome to Democracy Now!, Paul.
Krugman: Good morning, Amy.
Goodman: Well, you say, “Zombie ideas have won.” Why are you calling that Timothy Geithner’s plan today?
Krugman: A zombie idea is an idea that you keep on killing, because it’s a bad idea, but it just keeps on coming back. And what this is is we’ve had this idea since Henry Paulson came out with his plan six months ago, the Bush administration, that the real problem is that the market is undervaluing all of these toxic assets, and what we need to do is have taxpayers go in and buy them at a fair price, and that will solve all of our financial problems. And that’s what happened. The Geithner plan is a complicated, disguised variant on the same idea. It’s the zombie that you keep killing, and it just keeps coming back.
Goodman: Called “cash for trash”?
Krugman: Yeah, that’s—that was the phrase that was out there six months ago, which I picked up. And yeah, it’s basically saying that, you know, there’s nothing really fundamentally wrong with our banking system; there’s just this crisis of confidence, and so nobody wants to buy, you know, asset-backed securities, nobody wants to buy stuff that’s ultimately backed by home mortgages, and if only we could get people to see that these things are really pretty decent assets, then the banks will be in fine shape. And that’s the trouble. You know, there’s an argument that says maybe they were somewhat underpriced, but to make this the centerpiece of your financial rescue plan is just—well, as I wrote in the column, it leaves me with a feeling of despair.
Amy Goodman is the host of the nationally syndicated radio news program, Democracy Now!