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The World's Smartest on Geithner's Crisis Plan

If 50 living Nobel Prize recipients have mixed opinions, should the government take heed and restructure its plans to save the economy?

It seems that when the world’s best thinkers gather to discuss the country’s current plight, it’ll be each man on his own. Last March 24, Nobel Prize laureates convened to talk about the Obama administration’s plan of buying toxic assets that is believed can finally revive our economy. But the New York Post has reported that not everyone’s supporting this move. The article states, “Three Nobel winners Edward Prescott, president of the Federal Reserve Bank in Minneapolis, and economics Professors Vernon Smith and James Buchanan stood by their joint statement months ago that Congress was playing in fantasyland with the huge bailout. They call the rescue effort ‘a triumph of hope over experience to believe that more government will help the United States today.'”

The New York Times columnist and 2008 laureate Paul Krugman is also against the plan stating, “The Geithner plan is complicate (and), disguised…”, to DemocracyNow.org. Watch him speak in this interview last Monday.

On the other hand, there are those who are backing the Treasury Department’s program. Economist Michael Spence said to NYP that the plan has a higher chance of actually “working”.

So if these great minds are divided, how much more will it be for the public?
Geithner’s reputation was suddenly catapulted after receiving a heavy dose of criticism with his lack of details during last month’s rescue plan announcement. Interestingly, Wall Street responded positively last Monday when the Dow Jones surged by 19 percent (but fell by 1.5 percent the following day). This is good news but short-term bullishness is just as frustrating as bears in the market.

Among the criticisms that can be hurled against Geithner and his equally determined team includes the total subsidy that the government will handle as it lures investors into buying toxic assets. Also, hedge fund managers are now more difficult to assure that the government bailout won’t throw their money in the dumps.

Americans are also weary about how banks that’ll take toxic assets will make a profit out of it. Though the government will share the risk by leveraging the assets six times, there are still more details that need to be clarified like the determination of the amount of equity that can be taken that fairly commensurate their size.

Lastly, the NYP has revealed how the government will raise the $1 trillion to get the plan rolling. Its recent post states that among the new details of the plan, it includes “three basic programs (that) would let investors buy whole loans, allow banks to pledge junk assets as new collateral to fund purchases of other paper and set up at least five asset managers to do wholesale balance-sheet cleansings by raising capital and bundling securities.” That’s a lot of money to launch a single program for taxpayers who have to choice but to foot the bill.

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