In a much discussed public letter to AIG, a Mr. Jake DeSantis has resigned from AIG. I do not know the particulars of Mr. DeSantis' situation, but I am familiar with the fact that AIG was effectively bankrupt in September 2008. To wit, his hard work to that date would have gone uncompensated because of the failure of the company he worked for. Mr. DeSantis is claiming he would have moved on to greener pastures absent assurances from Ed Liddy, the acting AIG CEO:

. . . A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees. . . At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress. . . . We have worked 12 long months under these contracts and now deserve to be paid as promised. . . .

[MORE . . .]

The guiding principle behind the Geithner plan is, as Paul Krugman noted yesterday,

"that we’re looking at an unnecessary panic. The housing bust, so the story goes, has spooked the public, and made people nervous about banks. In response, banks have pulled back, which has led to ridiculously low prices for assets, which makes banks look even weaker, forcing them to pull back even more..and if we can get the market in troubled assets going, people will see that things aren’t really that bad...the vicious circles will turn into virtuous circles."

I'm a layman with no economics background but I have followed the housing boom and bust pretty closely and I think that Geithner's plan is guided by an unreasonably optimistic view of the value of toxic assets, particularly housing.

Consider the following: [More...]

The New York Times reports on the number of states reversing course and closing prisons as a means of saving money.

Some states, like Colorado and Kansas, are closing prisons. Others, like New Jersey, have replaced jail time with community programs or other sanctions for people who violate parole. Kentucky lawmakers passed a bill this month that enhances the credits some inmates can earn toward release.

Michigan is doing a little of all of this, in addition to freeing some offenders who have yet to serve their maximum sentence. And last Wednesday, Gov. Bill Richardson of New Mexico, a Democrat, signed legislation to repeal the state’s death penalty, which aside from ethical concerns was seen as costly.

It's about time we began getting smart about crime instead of just tough on crime.

It's going on now. Talk about it here.

Update (TL): News recap here. The transcript is here.

Four smart economists, Paul Krugman, Brad DeLong, Simon Johnson and Mark Thoma, discuss the Giethner Plan.

Definitely worth a read.

CNN.com is running the Geithner-Bernanke hearing before Barney Frank's committee. The focus is on AIG, nothing much yet on the Geithner Plan. I actually have a lot of sympathy for Geithner and Bernanke on the AIG bailout last fall. The situation then was incredibly volatile and there simply was not time or the legal mechanism to put AIG into receivership. It is true that no negotiations took place with counterparties to AIG contracts. I think the AIG ship has largely sailed (you could of course impose a surtax on those counterparty payments and no, that would not be a Bill of Attainder). The real issue is what we do going forward. The Geithner Plan and its serious flaws.

In short, I am not one to rail against Geithner and Bernanke about AIG. I will rail against the Geithner Plan. UPDATE - as always pols are pols, Maxine Waters wasting time grilling Geithner about his CoS being a former Goldman Sachs person. The issue is not who worked for who. It is what they are going to do.

More . .

Via Atrios, Stiglitz rips the Geithner Plan:

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday. "The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

[More....]

There's tone-deaf and there's just plain stupid. J.P. Morgan apparently is both. After receiving $25 billion in TARP funds, the company is proceeding with plans to spend $138 million on two luxury corporate jets and build ""the premier corporate aircraft hangar on the eastern seaboard" to house them."

According to JPMorgan Chase architects, the new hangar will be built with reclaimed wood, quarry tile and even a "vegetated roof garden."

The Gulfstream 650's are described by the manufacturer as the "fastest," "widest" and "most comfortable" private jet ever with superior cabin amenities, an optional stateroom, and 12 interior designs to choose from.

The company says it's not using the TARP funds for the project. [More...]

. . . the Geithner Plan is to finance his Masters of The Universe bailout through a long term tax on banks? Via Krugman and Salmon, Nemo describes how the government subsidies (through non-recourse loans) will artifically inflate the prices for toxic assets but a Nemo commenter envisions how the government could recoup the money:

[C]ouldn’t [the FDIC] just raise the bank tax (or wait since the FDIC historically builds up a reserve over time) until the [government funds] [are] repayed? Sounds like a simple way to effectively have the banks slowly dig themselves out of this problem. . . . The only real downside I see is that it is slightly unfair to banks that are in good shape, since they will have to pay the increase[d] FDIC fee even thought they didn’t participate. . .

More . . .

Via Atrios, a vote of no confidence for the Geithner Plan from Bank of America analyst Richard Bernstein:

Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

But Krugman always hated Obama so it can't be true.

Speaking for me only

Before we throw trillions of dollars to Wall Street with the Geithner Plan, why not try throwing billions of dollars of tax credits to Wall Street and other private players by providing a lower tax rate (say 10% or even 5%) on capital gains on their investment in the toxic assets (or all mortgage backed securities?)

Obviously such a plan would create an artificially higher price for these assets due such special tax treatment. But so does the Geithner Plan. And the cost to the government (and taxpayers) would surely be less. The talk from Geithner and his supporters is that there is insufficient incentive for the private sector to invest in the toxic assets, due to current market conditions. How about trying a less expensive incentive first? Anyway, just a though off the top of my head.

Speaking for me only

Via TPM:

As described, the plan seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer. In its current form, Secretary Geithner's plan is a shell game that hides the true cost of the program from the taxpayers that will be asked to pay for it. Six months after Congress debated the first TARP, it is inexcusable that taxpayers still have not been told their true exposure.

That's right. Eric Cantor's critique of the Geithner Plan is correct.

Speaking for me only