Paul Krugman is an Idiot

Paul Krugman is making a comparison between JP Morgan Chase and Solyndra, saying that if the government’s role in the latter outraged you then the government’s role in the former should outrage you as well.

Because the direct lending of cash money to a newly formed small company is precisely the same as the continuation of decades-long implied guarantees of the existing debts of long-established major corporation.

Of Solyndra he says it was, “a small part of a broad program of loan guarantees,” but downplays that the loan to that company was its sole means of survival, and adds that, “it was the only loss.” Perhaps so, but it was a loan written off as a result of the total collapse of the company.

For JP Morgan he says that it, “is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of
too-bit-to-fail.” (Probably means “too-big-to-fail” and not “two-bit-to-fail.”) Right off the bat his comparison fails, because sitting back and saying that we’ll chip in if you need money is not the same as actually cosigning an unsecured loan. And the government is in no way involved in this loss, one which does not endanger the overall financial health of the company.

He goes on to say that, “There have been government losses on these programs, and will be in future,” which is an interesting claim because the “explicit on deposits” part is the FDIC, which is funded by payments from participating banks, and the “too big to fail” part is TARP, on which the government claims that we have not only recovered all of our money but have turned a profit. As for the “will be in the future,” he needs to talk to Barney Frank, who claims that the Democratic “financial reform” has taken care of all of that for the future.

Paul Krugman’s disdain for the financial industry is not entirely misplaced but, as tends to be the case with him, his logic is just not up to the task of illustrating his point.