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Toxic Asset Plan May Woo Investors, but Long-term Impact Is Unclear

While markets rose Monday on details of the toxic asset plan, critics voiced concern over taxpayer risk and the need for a long-term fix to financial sector troubles. New York Times columnist Paul Krugman and Donald Marron of Lightyear Capital debate the details.

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  • JIM LEHRER:

    Jeffrey Brown has our continuing coverage of the bank assets story.

  • JEFFREY BROWN:

    And we get two independent assessments now about the plan and the questions surrounding it. They come from Paul Krugman, a Nobel Prize-winning economist at Princeton University and columnist for the New York Times, And Donald Marron, CEO and founder of Lightyear Capital, a private equity firm in New York. He's worked in the financial services industry for more than 40 years.

    Well, Paul Krugman, you wrote critically of the plan this morning. Now you've heard Lawrence Summers. Are you persuaded?

    PAUL KRUGMAN, columnist, New York Times: No. You know, I wish Larry the best; I hope he's right. But this is a plan that treats a fairly minor symptom of the problem.

    You know, that maybe some of these toxic assets — I guess they're now toxic legacy assets, whatever — are being under-priced in the market. And maybe there's a problem there.

    But the fact of the matter is that the banks made a huge bet. They made a bet that the housing bubble was nonexistent, that, you know, historically unprecedented levels of consumer debt were not a problem. They lost that bet.

    And this plan does almost nothing to rescue them from the consequences of that bad debt. So I'm kind of saddened. It's kind of a punt. They've decided to sort of not really take on the critical issue of fixing the banks and instead hope that a little bit of rearranging of the financial furniture will solve the problem.

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