Nocera nails it
March 27, 2009
Nocera is cautiously optimistic on Geithner’s plan, for all the right reasons. His is a thoughtful analysis. A sample:
“There is something called the leverage cycle,” said John Geanakoplis, an economics professor at Yale. During the bubble, he continued, when the country was awash in debt, toxic assets rated AAA were leveraged at an outlandish 16-to-1 ratio. That leverage was the primary reason those assets made such big returns. Now we’re in the opposite end of the cycle. There is no leverage at all available — yet without it, the return on these assets would simply be too small to make them interesting enough for investors to purchase. The only entity capable of injecting leverage in the system is the government.
I have been so disappointed this week with the HuffPo. Every one of their bloggers seems to have bought into Taibbi’s conspiracy theory or Krugman’s attention-seeking rant.
I also found myself agreeing somehow with David Brooks: Even if the plan doesn’t work, it succeds, because it will have made the case without a doubt that nationalization of X or Y bank is necessary so it will make it less messy politically.