artnews’s posterous

The Los Angeles Times reports about the new activism to pass Obama's budget.        But there's no comparable coordinated action yet to improve the banking bailout schemes that many leading economists, notably Paul Kruman, the subject of this week's Newsweek cover, don't think will work. Tom Edsall interviews and quotes from leading progressive and pessimistic  economists who disagree over whether Geithner's highly subsidized toxic assets plan can work. But even those who now, surprisingly, think it has the potential to work believe that insolvent banks should be nationalized: "On his own blog,[Noriel]  Roubini added a crucial warning: 'the Geithner plan is not an alternative to nationalization: insolvent banks should be nationalized and the Geithner plan should not apply to them. But solvent banks still need to have their toxic assets disposed of; and for these banks the Geithner plan provides a solution that - all in all - is better than the alternative.'"         A former IMF economist has a grimmer view in the new Atlantic: Our banking institutions and self-serving elites have turned us into a banana republic, with taxpayers being the ultimate losers.        James K. Galbraith in the new Washington Monthly has a historically well-informed look at why even the New Deal didn't get the banks lending again (it just kept them from collapsing), and why Geithner's new plans won't work,either  -- and millions of Americans, especially senior citizens, are being left vulnerable to Great Depression-like privations as their stock portfolios and housing values plummet.        He writes about the current economic meltdown:        "In addition, some of the biggest banks are bust, almost for certain. Having abandoned prudent risk management in a climate of regulatory negligence and complicity under Bush, these banks participated gleefully in a poisonous game of abusive mortgage originations followed by rounds of pass-the-bad-penny-to-the-greater-fool. But they could not pass them all. And when in August 2007 the music stopped, banks discovered that the markets for their toxic-mortgage-backed securities had collapsed, and found themselves insolvent. Only a dogged political refusal to admit this has since kept the banks from being taken into receivership by the Federal Deposit Insurance Corporation—something the FDIC has the power to do, and has done as recently as last year with IndyMac in California...   "A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.   hat being so, what must now be done? The first thing we need, in the wake of the recovery bill, is more recovery bills. The next efforts should be larger, reflecting the true scale of the emergency. There should be open-ended support for state and local governments, public utilities, transit authorities, public hospitals, schools, and universities for the duration, and generous support for public capital investment in the short and long term. To the extent possible, all the resources being released from the private residential and commercial construction industries should be absorbed into public building projects. There should be comprehensive foreclosure relief, through a moratorium followed by restructuring or by conversion-to-rental, except in cases of speculative investment and borrower fraud. The president’s foreclosure-prevention plan is a useful step to relieve mortgage burdens on at-risk households, but it will not stop the downward spiral of home prices and correct the chronic oversupply of housing that is the cause of that.  " Second, we should offset the violent drop in the wealth of the elderly population as a whole. The squeeze on the elderly has been little noted so far, but it hits in three separate ways: through the fall in the stock market; through the collapse of home values; and through the drop in interest rates, which reduces interest income on accumulated cash. For an increasing number of the elderly, Social Security and Medicare wealth are all they have.  " That means that the entitlement reformers have it backward: instead of cutting Social Security benefits, we should increase them, especially for those at the bottom of the benefit scale. Indeed, in this crisis, precisely because it is universal and efficient, Social Security is an economic recovery ace in the hole. Increasing benefits is a simple, direct, progressive, and highly efficient way to prevent poverty and sustain purchasing power for this vulnerable population. I would also argue for lowering the age of eligibility for Medicare to (say) fifty-five, to permit workers to retire earlier and to free firms from the burden of managing health plans for older workers.  " This suggestion is meant, in part, to call attention to the madness of talk about Social Security and Medicare cuts."

And what will the rest of us do about this crisis?