Premature Punditry

When the broad outlines of the Geithner plan first leaked yesterday, I noted that "it's impossible to offer an informed opinion based on the extremely sketchy details in these articles." The descriptions of the Geithner plan in the WSJ and NYT are so broad and so vague that they can't serve as the basis for any remotely serious analysis. As someone who has practiced structured finance law for many years, the one thing I can tell you for sure is this: the details matter.

But that hasn't stopped a host of bloggers (who I normally agree with) from vocally condemning the plan. Yves Smith is calling on people to contact their Congressmen to express their opposition, and thinks she already has analysis that's "damning on its face," despite the fact that she hasn't even seen the plan yet. Yves is either being lazy or intellectually dishonest, and it'll be hard to take anything she says about the Geithner plan seriously.

Worst of all, Paul Krugman, who I've been a big fan of ever since he was a columnist for the U.S. News & World Report (yeah, I'm old), continues to embarrass himself by offering absurdly superficial analysis of a bank rescue plan he hasn't seen yet. Krugman is a great academic economist, but he's obviously not qualified to offer an informed opinion on banking/financial policy. In addition to not understanding the difference between default risk and spread risk, he clearly doesn't have the foggiest idea how ABS or CDOs work. For instance, he apparently doesn't realize that the value of an ABS includes a liquidity premium. (Maybe he's just bitter that the solution he advocated last fall—recapitalization instead of toxic asset purchases—didn't work). I sincerely hope Krugman stops offering this kind of pseudo-analysis soon.

The bottom line is that anyone who thinks they already have enough information about the Geithner plan to offer informed analysis doesn't deserve to be taken seriously.