Thursday, March 26, 2009

Carney on Geithner the Toxic Avenger

"The markets loved Tim Geithner's latest bank-rescue plan, leading to a huge rally in the stock markets and media declarations that the Treasury Secretary had 'uncooked' himself with Monday's announcement.

"But reality may soon settle back in. The New York Post reports Thursday that 9 in 10 living laureates of the Nobel Prize in Economics are down on the plan. Even Paul Krugman is convinced that it won't work.

"And in Wednesday's Financial Times, another left-wing heavy hitter, Jeffrey Sachs, called the plan theft from taxpayers. He laid out in clear detail how the government-provided leverage and nonrecourse loans would lead to investors' overpaying for bad assets and leaving taxpayers with the bill. 'The idea of private-sector price-discovery is . . . flimflam,' he wrote.

"There's not necessarily any contradiction in the disparate reactions of the markets and the economists -- what's good for the banks may be bad for taxpayers and the public fisc in the long-term. But the rather cautious responses from economists from across the spectrum do illustrate a principle made famous by another Nobel laureate no longer with us -- there's no such thing as a free lunch, as Milton Friedman liked to say. Even Mr. Geithner can't wish away that law of economics."

-- Brian M. Carney, Wall Street Journal

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