November 25, 2008

Unbylined AP Report: Krugman ‘Opposed Bailout’

KrugmanThe Associated Press can’t even get it right in a three-paragraph item about a White House ceremonial event.

In a story Monday afternoon about President Bush’s meeting with two Nobel Prize-winning scientists and Nobel Economics winner Paul Krugman, the unbylined AP writer claimed that Krugman opposed the government’s financial bailout. Evidence abounds that this is not only not the case, but that Krugman wants the bailouts to be bigger, and to involve more direct government ownership.

Here are the first and third paragraphs from the story (link probably will not work after about a week):

Three 2008 Nobel laureates from the United States lined up with President George W. Bush on Monday for an Oval Office photograph to mark their achievements.

….. The third laureate at the White House was Paul Krugman of New York, who won the Nobel Memorial Prize in Economic Sciences for his work on international trade patterns. Krugman, a frequent critic of the Bush administration who opposed the recent $700 billion financial bailout, is a Princeton University professor and New York Times columnist.

Since Krugman’s supposed opposition may become folklore shortly, it’s best to take a cruise through Krugman’s blog posts to show that the claim is terribly outdated and currently flat-out wrong:

  • At Krugman’s NYT blog on September 20, he expressed “Doubts about the Rescue,” because nobody was saying “how Treasury might recapitalize firms that will be bankrupt even with the purchase facility, yet need to be kept in being.”
  • Later that day, Krugman, said “No Deal” — “Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.”
  • The very next day, September 21, Krugman wrote that “the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.” But at the same time, he wrote that “public intervention is needed.” He was already on board for a bailout; it was just a question of the form it would take.
  • On September 23, Krugman, to his credit, objected to Paulson’s attempt to avoid any kind of oversight.
  • On September 28, Krugman agreed with another writer, Brad DeLong, “that Swedish-style temporary nationalization is the right answer to a financial crisis; he’s right.” So he didn’t like the bailout as envisioned because it didn’t involve de facto government takeovers.
  • Here’s paydirt — On September 28, Krugman made his support, though a bit grudging, quite clear — “I don’t, in the end, have much more to say about the plan. It passes my test of no equity, no deal; that, plus the danger of financial panic if it doesn’t go through, makes it worth passing, though celebration is not in order.”

So the fact is, at crunch time, Krugman said “yes.”

As what I refer to as The Giant SUCKUP (Seemingly Unlimited Cash Kitty Under Paulson) has morphed from an asset-purchase program to a heavily coerced preferred equity investment program, subsequent posts by Krugman have, as you would expect, become more supportive. His objections lie in the fact that, so far, the government isn’t throwing more money at the problem — i.e., the de facto nationalization of the banking system isn’t happening fast enough:

  • On October 9, as it became clear that Paulson was moving to government equity investments, Krugman gave “A tentative cheer: Paulson may have been dragged kicking and screaming into doing the right thing to rescue the financial system.”
  • On October 25, Krugman supported a complaint that “despite the big-sounding numbers, financial institutions are losing capital faster than governments are putting it in.”
  • Yesterday (November 24), he said that among his objections to the Citigroup bailout, it is “quite possibly inadequate, so that Citi will be back for more.”

Why the AP writer of the Nobel article chose to characterize Krugman as opposing the bailout bill, when under open-ended provisions Treasury has been doing what Krugman prefers for about 45 days — supposedly just not enough of it — is a complete mystery. Was it sheer ignorance, or the need to show Krugman specifically disagreeing with Bush about something-anything to make sure it didn’t end positively, or something else?

I guess we’ll never know, but there’s no doubt that it’s wrong.

Cross-posted at


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