Economics [hurts my brain]

So, when I am in doubt, I turn to the professionals....

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed Page and continues as professor of Economics and International Affairs at Princeton University.

Mr. Krugman received his B.A. from Yale University in 1974 and his Ph.D. from MIT in 1977. He has taught at Yale, MIT and Stanford. At MIT he became the Ford International Professor of Economics.

Mr. Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes. His professional reputation rests largely on work in international trade and finance; he is one of the founders of the "new trade theory," a major rethinking of the theory of international trade....Mr. Krugman's current academic research is focused on economic and currency crises.

On October 13, 2008, it was announced that Mr. Krugman would receive the Nobel Prize in Economics. [Source: NY Times]

And here is what Krugman has had to say this past week about the current 'plans' in the US:

""If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.""

""This is more than disappointing. In fact, it fills me with a sense of despair.""

""...by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.""

""But the Obama administration, like the Bush administration, apparently wants an easier way out.""

""But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.""

""By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.""

""But the real problem with this plan is that it won’t work""

""...no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.""

""Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.""

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And this is all from the article I posted a couple of days ago:

""Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.""