Getting something right?

Updated Tuesday morning.

Ok, Krugman hates it, DeLong sees some merits, Hamsher thinks it's a dirty deal, the President's committed, and at the moment Wall Street is apparently happy or at least hopeful and that, I think, has been the point all along---Tim Geithner hasn't been at work on a plan to fix the banking system, let alone reform it, he's been trying to get another stimulus going.  The Administration wants more money flowing into the economy and they believe that if they get the banks lending again money will flow, to businesses, to consumers, to stores, to businesses, to consumers, to stores, and around and around, with the Government---that is, us, the taxpayers---getting paid back along the way in dribs and drabs.

We need the banks lending like crazy, exclaimed the Chair of the Council of Economic Advisors, Christina Romer.

Oh no we don't, says Steve Clemons, crazy lending is what got us into this mess.  But maybe Romer was being hyperbolic.

Krugman reconsiders and still hates it.  He says they're trying to set the calendar back to 2006 or so and he doesn't see any good coming of that, even if they manage it.

Ken Houghton thinks they're trying to create a new bubble and says:

I would have thought by now that economists would know what happens when you create bubbles in a market. That doesn't change when just because you use the U.S. Treasury as a Fluffer.

The question is, though, does the President think they'll have fixed things with this?

My impression is that the President isn't looking at this as an economics problem or a political one.  To him it's on the order of a natural disaster.  The object right now is to take care of the injured, get services back up and running so you can get people back in their homes and businesses can re-open their doors, and get the clean up and urgent repairs underway.  Then you can start asking what happened, who's to blame, and how to prevent a similar disaster from happening in the future.

But doesn't that depend on the storm having blown itself out, the wildfires having burned down, the floodwaters having receded, the volcano having finished erupting?

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The Administration may be fumbling the banking problem, politically and economically, but at least the President's plan to help small businesses is a sensible one, in Andrew Tobias' estimation:

The way to help small businesses is NOT to give them tax cuts – what good’s a tax cut when you’re making no profit to be taxed ON?  I refer you back to my five questions on tax cuts. 

But yesterday the Obama Administration did three things concrete things that WILL help small business: 

· It waived the fees small businesses have to pay to take out SBA loans.

· It raised the Federal guarantee on such loans from 75% and 85% to 90%, which will encourage more lending (yet still leave the lender on the hook for significant scratch).

· It set aside $15 billion of TARP money to buy securitized SBA loans, until private investors regain their appetite, so that the banks can sell them and, with the proceeds, make new small business loans.

That money will be ready to start buying 7A loan securitizations by the end of this month – any minute now – and 504 loan securitizations by mid-May.

To take just one concrete example of how constructive this is:  I have an investment in a private company that has profitable orders it can’t fill.  It lacks the working capital to pay suppliers, shippers, and so on.  It may have to close and lay everyone off.  But with an SBA loan, it would be able to keep people employed filling the orders, remain in business, and continue to grow.

Now, because of the Administration’s swift action, it has a better chance of getting an SBA loan.

Compare that with telling the owners of this company that they will get a tax break on their nonexistent profits.  I think the Obama approach makes more sense.

Andrew also asks, Is the deficit too big?  His answer?  Not on your life.

Update I:  The New Yorker's James Surowiecki is more tolerant of the Geithner Plan because he thinks it just might work.

Comments

[Rana]

what good’s a tax cut when you’re making no profit to be taxed ON?

That has long been my beef with the tax-cutting crowd. I pay minimal taxes because I make no money - last year I cleared about $15,000, and that was with things like investment dividends factored in. Cutting my taxes by 50% would save me, oh, about $50 max (and some years it would save me $0). Oh, whee, I'm a goin' on a willllld spendin' spree now!

So I flick my chin in the direction of tax cuts.