Nobel Winning Economist is Terrified....

...of "The mentality that what's good for Goldman Sachs is good for all Americans.

by

Conrad Lawrence

As an economist Nobel winning economist, Paul Krugman is s amazed. As a citizen he's terrified.
"The problems are bigger than we grasped," Krugman explained to Renee Montagne of NPR's Morning Edition. "No one understood how vulnerable this 21st Century structure really is." He was, of course, referring to the credit based economy that this country has adopted and described the meltdown as being created by greed followed by fear. Greedmanifested by rushing into a housing bubble to make money, despite nearly a decade of warnings. Panic when it fell apart. (More Below)
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And like Guy Cecala, who publishes an industry newsletter called Inside Mortgage Finance, Krugman is worried that the current bailout will not fix the crisis. He claims that things will get substantially worse; things will spiral down. A lot of people who are middle class will no longer be middle class. Not sure where Krugman's been the last year. Both Cecala and Krugman indicate that the problem with the bail out is that it does nothing to keep homeowners in their homes. Cecala describes two plans meant to infuse money at the level of the homeowner to keep the current loan cycle pumping, much like the Alternative Bailout Plan described to the side. He asks if you take homes off line, how will that help the housing market, a component everyone agrees is needed for sustained growth out of this crisis. Krugman see issues with the top down approach of the bail out by giving money to banks and further leaving them go unregulated.

Gutted by Bush

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Big problem with the current bail out according to Krugman is that in terms of regulating the financial industries natural tendency toward unsensible greed, the Treasury Department has been gutted by the Bush Administration. The Treasury Department, "doesn't have the deep understanding that comes from employing burearocrats who know what they are doing." The Bush Administration has systematically removed those people and Greenspan helped create a dangerous illusion of security when in fact there wasn't
enough.

Krugman feels that there is a need for regulating the banks and the financial industry and comments on where the two candidates fall in that paradigm. According to Krugman, McCain is still trying toshoe horn this bailout into his perception that
government is too big. He starts talking about earmarks which baffles Krugman since earmarks has nothing to the credit based financial crisis. Krugman feels that Obama is a regulation guy, despite not always voting for regulation, but sees him intellectually more flexible and willing to admit that it is FDR time

In a way that indicates an answer to Cecala's big question concerning a homeowner's bail out: Do we let the banks still hold the mortgages or give them over to some government entitity?