“The Zombie Ideas Have Won”–Paul Krugman on $1 Trillion Geithner Plan to Buy Toxic Bank Assets (with audio and video)

Democracy Now! with audio and video:

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.

Treasury Secretary Timothy Geithner today is unveiling the Obama administration’s plan to finance the purchase up to $1 trillion dollars 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 dollar 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 dollars in bonuses after receiving a $170 billion dollar 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.

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 paper is headlined, “Financial Policy Despair” He joins us on the phone from New Jersey.

Barack Obama