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Headlines for March 23, 2009
Report: US Will Appoint “Afghan PM” to Bypass Hamid Karzai
The Guardian of London reports the Obama administration and European allies are preparing to plant a high-profile figure in the heart of the Afghan government in a direct challenge to Hamid Karzai, the president of Afghanistan. The US is considering creating a new chief executive or prime ministerial position in an attempt to bypass Karzai, who has has fallen out of favor in Washington. In a further dilution of Karzai’s power, the US is proposing to divert money from the Kabul government to the provinces. Last week, Karzai accused an unnamed foreign government of trying to weaken the central government in Kabul. Karzai said, “That is not their job. Afghanistan will never be a puppet state.”
Obama: Exit Strategy Needed for Afghanistan
On Sunday, President Barack Obama appeared on 60 Minutes and discussed the situation in Afghanistan.
President Obama: “But we can’t lose sight of what our central mission is: the same mission that we had when we went in after 9/11. And that is, these folks can project violence against United States citizens, and that is something that we cannot tolerate. But what we can’t do is think that just a military approach in Afghanistan is going to be able to solve our problems. So what we’re looking for is a comprehensive strategy. And there’s got to be an exit strategy. There’s got to be a sense that this is not perpetual drift.”
Last month, President Obama ordered 17,000 more US troops to fight in Afghanistan. Meanwhile, US Special Forces are being accused of killing five Afghan civilians inside the home of a local mayor. The US disputes the report and says the dead were all militants.
Obama: Bush-Cheney Policies Haven’t Made Us Safer
During the same interview on 60 Minutes, President Obama was asked about former Vice President Dick Cheney’s comment that the new administration’s counterterrorism policies were making the US more vulnerable to attack.
President Obama: “I think he is—that attitude, that philosophy, has done incredible damage to our image and position in the world. I mean, the fact of the matter is, after all these years, how many convictions actually came out of Guantanamo? How many—how many terrorists have actually been brought to justice under the philosophy that is being promoted by Vice President Cheney? It hasn’t made us safer. What it has been is a great advertisement for anti-American sentiment, which means that there is constant effective recruitment of Arab fighters and Muslim fighters against US interests all around the world.”
Geithner to Unveil Plan to Purchase $1 Trillion in Toxic Assets
Treasury Secretary Timothy Geithner is preparing to unveil a plan today to purchase as much as $1 trillion in troubled mortgages and other assets from banks. The government is reaching out to hedge funds, private equity firms and sovereign wealth funds to help buy the toxic assets. The Obama administration has described the plan as a public-private partnership, but most of the actual money will be put up by the government. The New York Times reports the government will offer low-interest loans to coax investors to form partnerships with the government to buy toxic assets from banks. If the assets go up in value, the hedge funds stand to benefit greatly, but if the assets fall, taxpayers bear most of the risk. We’ll have more on the plan after headlines.
White House Officials Oppose Tax on Wall Street Bonuses
Obama administration officials are expressing concern over moves by Congress to heavily tax Wall Street bonuses. Last week, the House voted to levy a 90 percent tax on bonuses paid since January 1 by companies that owe the government at least $5 billion in bailout loans. Jared Bernstein, Vice President Joe Biden’s top economic adviser, said the House bill is a “dangerous way to go."
World Bank: 2009 Will Be “Very Dangerous” Year
In other economic news, World Bank President Robert Zoellick warned the entire globe will feel the effects of the economic meltdown this year.
Robert Zoellick: “Well, I think 2009 is going to be a very dangerous year. And just to give you some reference points, the IMF came out with a new global forecast recently, close to decline of about one percent of growth. We at the Bank will be coming out with ours soon, and it will probably be in the range of one to two percent. But to put that number in a context, you haven’t seen a figure like that globally since World War II, which really means since the Great Depression.”
The World Bank also warned over the weekend that a wave of social and political unrest could sweep through the world’s poorest countries if G20 leaders fail to come to their aid. A new report from the Overseas Development Institute said the collapse of the global economy would cost 90 million lives, lead to an increase to nearly a billion in the number of people going hungry, and cost developing countries $750 billion in lost growth.
Iran’s Supreme Leader Responds to Obama’s Message
Iran’s supreme leader, Ayatollah Ali Khamenei, said on Saturday President Barack Obama’s offer of better ties was just a “slogan,” but pledged Tehran would respond to any real policy shift by Washington. Khamenei’s comment came one day after President Obama released a videotaped appeal to the people of Iran.
Ayatollah Ali Khamenei: “They (Americans) give the slogan of change, but in practice no change is seen. We haven’t seen any change. Even their literature has not changed. Since the first moment the new United States president officially took office and delivered speech, he insulted Iran and the Islamic Republic of Iran’s government.”
Israel Accused of Targeting Medical Personnel in Gaza
Physicians for Human Rights has accused Israeli soldiers of failing to give medical teams special protection during the attack on Gaza. Sixteen Palestinian medical personnel were killed by Israeli fire; another twenty-five were wounded. Israel attacked thirty-four medical facilities, including eight hospitals.
IDF Soldiers Ordered to Shoot at Gaza Rescuers
Documents have also been found that suggest Israeli troops were given orders to shoot at rescue teams during the war. One document found in a Palestinian home taken over by the Israeli military reads, “Rules of Engagement: Open fire also upon rescue.” The note was handwritten in Hebrew.
Soldier: Israeli Rabbis Turned Gaza Invasion into Religious War
The McClatchy News Service reports rabbis affiliated with the Israeli army urged troops heading into Gaza to reclaim what they said was God-given land and to ‘’get rid of the gentiles.’’ This according to the testimony of a soldier who fought in Gaza. The soldier said the message from the rabbis effectively turned the twenty-two-day Israeli attack into a religious war.
Israeli Activist Calls for Assassination of Mahmoud Abbas
A prominent right-wing Israeli activist has publicly called for the assassination of Palestinian President Mahmoud Abbas. Nadia Matar of the group Women in Green made the call last week during a speech in New York organized by Americans for a Safe Israel.
Nadia Matar: “And don’t you understand that in order to bring peace to Europe, one has to first destroy the Nazi beast? Today we must destroy all the terrorist organizations. We must kill all the terrorist leaders, starting with Mahmoud Abbas and all others.”
Nadia Matar was speaking at the Safra Synagogue in New York. The synagogue’s rabbi, Elie Abadie, condemned Matar’s remarks, saying he was “horrified at such hateful statements."
Antiwar British MP Barred from Canada
The Canadian government has barred British antiwar lawmaker George Galloway entry into the country on the grounds that he is a threat to national security. Galloway was scheduled to start a four-city speaking tour next week. Galloway has been a vocal critic of the US wars in Iraq and Afghanistan, as well as the Israeli government. Canadian officials accused Galloway of giving financial support to Hamas and offering sympathy to the Taliban.
Family of Slain Iraqi Guard Sues Blackwater
The private military firm formerly known as Blackwater is facing another lawsuit over its work in Iraq. The family of a slain Iraqi security guard sued the company last week, saying a Blackwater contractor shot the man without provocation on Christmas Eve of 2006. At the time of the shooting, the Iraqi guard was on duty protecting Iraqi Vice President Adel Abdul Mahdi. According to the lawsuit, Blackwater promised to compensate the widow of the Iraqi guard in a series of payments but stopped after an initial payment of $20,000.
Costco, Starbucks and Whole Foods Fight Proposed Labor Law
In labor news, executives from Costco, Starbucks and Whole Foods have launched a campaign to block the passage of the Employee Free Choice Act, which would make it easier for workers to form unions. The three retail giants have proposed a so-called compromise bill that strips the key portions of the legislation. The companies want to preserve the current law that allows employers to force workers to hold a secret ballot election before recognizing a union. Under the Employee Free Choice Act, workers would be able form a union if a majority of them signed a card or a petition.
Jury Acquits Former Puerto Rican Governor
In Puerto Rico, a federal jury has found former Puerto Rican Governor Anibal Acevedo Vila not guilty on nine counts of conspiracy, false statements and wire fraud, among other crimes.
Vermont Panel Approves Same-Sex Marriage Bill
Vermont has moved a step closer to legalizing same-sex marriage. On Friday, the state’s Senate Judiciary Committee unanimously approved a bill extending marriage to same-sex couples in Vermont. The full Vermont Senate is expected to vote on the bill today.
NYC Pays $1.5 Million to Families of Two Killed by NYPD
In New York, the city has agreed to pay out $1.5 million to the families of two young men shot dead by New York police detectives fourteen years ago in the Bronx. The families of Hilton Vega and Anthony Rosario had sued the city, claiming police used excessive force in the shooting. The detectives in the case were both former bodyguards for Rudolph Giuliani during his 1993 mayoral campaign.
Four Oakland Police Officers Killed in Shoot-Out
In Oakland, police are investigating how a routine traffic stop turned into one of the bloodiest days for police officers in California history. Police say a twenty-six-year-old man, Lovelle Mixon, shot dead four Oakland police officers over the span of several hours before he was fatally shot. Police said Mixon was already wanted on a warrant. He had been despondent over his inability to find a job and afraid of being arrested again.
Protests Mark 6th Anniversary of US Invasion of Iraq
And protests were held in Washington, San Francisco, Los Angeles and other cities on Saturday to mark the sixth anniversary of the US invasion of Iraq.
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“The Zombie Ideas Have Won”–Paul Krugman on $1 Trillion Geithner Plan to Buy Toxic Bank Assets
Treasury Secretary Timothy Geithner is preparing to unveil a plan today to purchase as much as $1 trillion in troubled mortgages and other assets from banks. The government is reaching out to hedge funds, private equity firms and sovereign wealth funds to help buy the toxic assets. The Obama administration has described the plan as a public-private partnership, but most of the actual money will be put up by the government. We speak with Nobel Prize-winning economist and New York Times columnist, Paul Krugman. [includes rush transcript]
Guest:
Paul Krugman, 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.
Rush Transcript
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AMY GOODMAN: Treasury Secretary Timothy Geithner today is unveiling 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 last night on 60 Minutes, President Obama expressed strong support for Geithner. He was interviewed by 60 Minutes correspondent Steve Kroft.
STEVE 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 BARACK OBAMA: No.
STEVE KROFT: Has he volunteered to or come to you and said, “Do you think I should step down?”
PRESIDENT BARACK 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.
AMY 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.
PAUL KRUGMAN: Good morning, Amy.
AMY GOODMAN: Well, you say, “Zombie ideas have won.” Why are you calling that Timothy Geithner’s plan today?
PAUL 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.
AMY GOODMAN: Called “cash for trash”?
PAUL 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: Members of the Obama administration hit the Sunday talk show circuit yesterday to drum up support for the administration’s plan to purchase up to a trillion dollars in troubled mortgages and other so-called toxic assets. Austan Goolsbee, a key White House economic adviser, was on Face the Nation. Harry Smith of CBS News quoted from your writing about the administration’s plan. This is an excerpt.
HARRY SMITH: There’s been a lot of negative press about this thing that hasn’t even been unveiled yet, and Paul Krugman, in his blog today, said, “For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose.”
AUSTAN GOOLSBEE: I don’t think that’s an accurate description. I mean, if the government doesn’t make money, the private sector doesn’t make money either. I mean, these guys are coming in in a partnership, and one of the reasons you want to have the partnership is precisely so that, A, the government doesn’t massively overpay for these troubled assets that are on the balance sheets, and B, so that everybody’s got skin in the game and you don’t get into situations where you’re paying guys for failure.
AMY GOODMAN: Paul Krugman, your response?
PAUL KRUGMAN: The important thing is not the shared equity. I’m sorry, it’s hard to avoid lapsing into jargon here. But 85 percent, at least according to the counts over the weekend, 85 percent of the money is going to be a loan from the government, which is a non-recourse loan, which means that it’s backed only by the assets that these guys are buying, which means that if the thing loses more than 15 percent of its value, which is highly, you know, possible, given how uncertain these things are worth, then the investors, the private investors, just walk away. So there’s—exactly, it’s a heads I win, tails you lose. If the stuff—you buy something at $100 and it goes up to $150, you make $50. You buy it at $100 and it goes down to $50, then you only lose $15, because the other $35 gets even by the taxpayer. So it’s a—it’s the same thing.
It’s basically what happened with savings and loans in the 1980s. They were deregulated and basically put in the position where the deposits were guaranteed, but the owners of the banks could do whatever they wanted, and so they took these huge risks, and most of the risks turned out bad. But if the risks turned out bad, it was the taxpayers’ problem, not the bank owners’ problem. Same thing here. They’re deliberately setting it up, so that there’s this huge incentive to—you know, basically where the upside belongs to the private investors, but most of the downside belongs to you and me.
AMY GOODMAN: So you socialize the debt, you privatize the profit. Why—
PAUL KRUGMAN: Yes, it’s—you know, it’s, yeah, lemon socialism. The minuses are the taxpayers; the pluses are the private investors.
AMY GOODMAN: Why doesn’t the government just buy all up all of the toxic assets then, like the FDIC does?
PAUL KRUGMAN: Well, it’s actually—the FDIC doesn’t—the FDIC guarantees a bank’s debts, basically, so the deposits are secure, and then if it says the bank is bankrupt, then it goes in and it seizes the bank and then sells the toxic stuff for whatever it can get. That’s what I advocate; that’s what we ought to be doing. They are—I think they’re just daunted by the scale of this thing. The FDIC normally does, you know, two or three banks a week, even in bad times, and they’re small banks. Here we’re talking about quite possibly Citigroup, which is $2 trillion in assets. It’s a very big thing. And I think the reason they keep on coming back, the reason the zombie ideas won’t stay dead, is the lure of an easy solution, that you can just wave a magic wand and the problem goes away, and they’re still looking for magic.
AMY GOODMAN: We have to break just for sixty seconds, then we come back to Paul Krugman, Nobel Prize-winning economist, professor of economics, Princeton, columnist at the New York Times. Stay with us.
[break]
AMY GOODMAN: Our guest, the Nobel Prize-winning economist, Paul Krugman, professor at Princeton, New York Times columnist. Do you think Timothy Geithner, the Treasury Secretary, Paul, should step down?
PAUL KRUGMAN: You know, I don’t have a strong view on that. It’s certainly becoming a problem, and he’s really got to clean up his act if he wants to stay there. But it’s just—it’s been really—you know, basically, look, this is not Geithner. Ultimately, the buck stops in the Oval Office. The question is, why is President Obama going with the soft side, the hope over analysis, on this stuff? So I’m not—I don’t have a big commitment on Geithner, one way or the other.
AMY GOODMAN: Can I ask you something about the AIG bonuses that have caused such an uproar? I mean, why wasn’t there strict regulations about how the stimulus money could be used, how the TARP could be used? Why wasn’t there regulation here?
PAUL KRUGMAN: Well, if I was going to take the side of the government people, I’d say it’s hard to write those regulations in a way that doesn’t have unintended consequences. You know, there was a time when they tried to put limits on CEO pay, and it ended up leading to the explosion of stock options, which was not a good thing.
But I think it basically comes down to the mindset, that the view still, apparently, dominant in—even in this administration is that there’s nothing really fundamentally wrong with the system. There were some mistakes, and there was some bad luck, but we don’t want to shake up the system too much. We don’t want to really rebuild it. We don’t want to tear up the relationships with those people who we thought were so smart and now look so dumb, really are smart, and we want to keep them on the job. It’s a problem. I think there’s too much conventionality. To some extent, the Obama administration is still partying like it’s 2006.
AMY GOODMAN: Paul Krugman, what would a new system look like? What would you advocate?
PAUL KRUGMAN: I think, in the end, we’re going to have to go back to something that is kind of like the system that emerged from the New Deal, which was tightly regulated banks and financial institutions, limits on risk taking, fairly high taxes for high earners, which—it turns out that, you know, low tax rates create incentives, but the incentives are actually to play dangerous games with other people’s money. A lot of things need to be updated for the twenty-first century and information technology and so on, but basically, our grandfathers got this thing right. Our grandfathers understood that finance is useful but dangerous and needs to be very tightly hedged about with regulations.
AMY GOODMAN: You write, “The Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines,” which is, you know, government buying up the troubled assets, “so it has produced what Yves Smith calls ‘a lot of bells and whistles to finesse the fact that the government will wind up paying well above market [value] for”—and you can’t say the rest.
PAUL KRUGMAN: Yeah, I still can’t say the rest, which was not Times style. But yeah, ultimately, when you get the—when you get through the complexities and the salesmanship, this is just a complicated way of having the government pay, having you and me pay, for buying these assets at more than any private investor is willing to pay for them.
AMY GOODMAN: You talk about why you’re so vehement about this right now, why you see this is the critical moment.
PAUL KRUGMAN: I think—this is a political judgment. We can argue this back and forth. But I think that Obama doesn’t get many shots at this, maybe just one. There’s already a huge public outcry, which doesn’t distinguish between the things we need to do and the things that were just mistakes. And for Obama to go and do this plan and put a lot of taxpayer money on the line and for it not to work, which I’m almost certain is what would happen, I don’t think he can come back to Congress for a plan that might actually work. I think that there’s a real—the stimulus is something of the same thing. You have to do this right, right away, because the political mood is getting ugly, for good reason, and there’s not a lot of patience with failed approaches, especially failed approaches that seem like your administration is just too close to Wall Street.
AMY GOODMAN: Paul Krugman, can you talk about the role of foreign sovereign wealth funds and explain what they are?
PAUL KRUGMAN: Oh, yeah. It’s just when a foreign government has a bunch of money which it is investing in the United States or in other countries, and as opposed to—this is when you do something beyond just plain parking lots of money in bank deposits or US government debt, which is where most of the foreign money is. You know, I think that’s a much exaggerated issue. It’s—yeah, these are governments playing with large sums of money. At least so far, all the evidence is that they’ve been really pretty dumb investors. The Chinese appear to have given us a substantial subsidy by buying a lot of stocks at the top of the market and losing them. So I’m not that—I don’t think it’s a central issue.
AMY GOODMAN: And this issue of counterparties, a word we’re just learning right now, that AIG gets all of these billions of dollars, and they use some of it to pass through to banks once—well, to entities like Goldman Sachs, to UBS, which had to pay a massive fine to the US government, so we’re paying their fine for violating us?
PAUL KRUGMAN: Well, this is—the counterparties—basically, think of the financial system as this web of connections. And the reason that we’re stepping in to rescue these companies in the first place is that we’re afraid that if you break the web at one point, it unravels across a pretty wide range. And that’s not just a theory. When Lehman Brothers was allowed to fail, in fact, a huge gaping hole opened up across the financial system. So this is the reason that we’re rescuing them in the first place.
Now, the only thing you can say is that if we’re going to be doing this, then we do need to look hard at who else we’re rescuing, and we need to say, “Look, you guys have to make some sacrifices as part of this, as well.” What we’re seeing right now is that it’s basically all free money from the taxpayer with no quid pro quo. And that gets to the heart of the dispute over what our policy is right now.
AMY GOODMAN: Finally, Paul Krugman, has this made you reevaluate your support of NAFTA, the whole push for sort of unregulated globalization, why so many people took to the streets in the Battle of Seattle, for example?
PAUL KRUGMAN: Yeah, the answer is no. There’s a huge distinction between letting actual trade in goods, stuff, real physical stuff, proceed, which is terribly important to the poorest countries, above all—when somebody asks, you know, why am I in favor of, more or less, free trade, my answer is, I’m really thinking about countries like Bangladesh, which literally are only able to keep their heads above water by their ability to sell labor-intensive stuff, thanks to their low wages. It’s really critical.
I’ve never been a fan of unregulated movement of capital internationally. This was a big fight back in the late ’90s between some of us who say, you know, “We need to regulate, we need to limit this stuff,” and people who said, “Oh, no. You have to trust the markets.” And what’s—it’s the hot money that’s the issue here; it’s not the auto parts from Mexico. That’s a different discussion. It’s the hot money from all over the world that is the crisis right now.
AMY GOODMAN: And the UN panel that will next week recommend the world ditch the dollar as its reserve currency in favor of a shared basket of currencies?
PAUL KRUGMAN: You know, there have been millions of plans—well, I’m exaggerating, but there have been many plans along those lines. That’s not a decision that can be taken by an international body. The dollar is the reserve currency because people think it’s the safest place to park their money. The euro is a natural competitor, except that the Europeans are as messed up in their policies as we are, if not more so, right now. But the way to deal with that is not to have some body agree that we’re going to do something different, but to simply have the world—have the natural competitors to the dollar make themselves worthy of the competition.
AMY GOODMAN: Paul Krugman, I want to thank you for being with us, Nobel Prize-winning economist, professor of economics at Princeton University, and columnist with the New York Times. His latest book is called The Return of Depression Economics and the Crisis of 2008. Thanks so much for joining us. He joined us from New Jersey.
PAUL KRUGMAN: Thanks a lot.
March 23, 2009
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