House Minority Whip Eric Cantor (R-VA) has just released his official reaction to the Treasury Department’s new toxic-asset-purchasing plan. And in an illustration of the GOP’s sudden populist shift, Cantor attacked the proposal as a giveaway to big business:
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.
Disturbingly enough, Cantor’s criticism of the Treasury plan echoes that of Paul Krugman, who wrote this morning:
The only way to argue that the subsidy is small is to claim that there’s very little chance that assets purchased under the scheme will lose as much as 15 percent of their purchase price. Given what’s happened over the past 2 years, is that a reasonable assertion?
Now, Cantor’s party has yet to emerge with any coherent alternative to the Obama administration’s plan — and the GOP certainly isn’t embracing anything like Krugman’s pitch for greater government involvement in winding down truly insolvent banks. But when a leading conservative politician and a leading progressive economist are sending the same signals, it’s safe to say that the day has taken a turn for the Carroll-esque.
Late Update: A GOP source emails to note that House Republicans did offer a plan of their own to right the markets. In September, Cantor proposed an insurance fund that would charge banks a premium in exchange for guaranteeing toxic mortgage-backed securities.
I’m certainly aware of that concept, but would argue that it’s far from a viable alternative to Geithner’s current tack. Time economics columnist Justin Fox explained at the time that insuring toxic assets would have the same risk of inadvertent subsidy that Cantor decried today, because setting premium levels for the banks would still require setting (likely inflated) prices for the securities being insured.
The Times also cited Cantor as admitting that the GOP plan “could only work in conjunction with a direct purchase of troubled debt by the Treasury” — a situation in which government would be playing the same role that Geithner envisions the private sector at least partially playing. So my reference to the lack of a “coherent alternative” included the mortgage-backed-securities insurance idea.