As mentioned below, I think that it's important to be willing to change one's mind as evidence emerges about what shapes one's opinions. In my case, I can now offer tentative support to the Bernanke/Paulson plan. A few key points:
(1) Mortgages have had the implicit backing of the government since the 1930's. Specifically, the mortgage-interest tax credit substantially reduced the cost of borrowing, and so there was huge incentive in the tax code to move unsecured debt into the mortgage market. Thus, the US voters helped caused the problem, and profited via much the same mechanism of leverage as the Wall Street banks.
(2) The $700billion will not all be spent at once, and as long as the Treasury takes an equity stake, it will not cost $700billion in the long term. The equity stake rule will keep some banks away, but after WaMu's failure, shareholders faced with insolvency or dilution will probably choose dilution. For banks that don't, the vulture capital is more likely to clean up the mess if they know other members of the sector are stable.
(3) The Great Depression did not turn around until the gov't bought bad loans from banks and helped convince people to start investing in small endeavors again (this is very pro-pie).
(4) This effort will not be able to restore 2005, and as long as the money is doled out slowly shouldn't have too much effect on inflation. Especially since there will be a general recession over the next year or so as our credit-fueled retail economy winds down and housing returns to price levels that the median wage earner can afford.
The Republican Caucus should be allocated enough money to build themselves a woodshed to take each other out behind. Their "insurance plan" basically tries to get the US governement involved in the industry that brought down AIG and which Berkshire Hathaway won't touch. If we knew what these were worth, then maybe, but the problem is that we don't. The "insurance plan" is exactly the transfer of wealth from taxpayers to Wall Street that the Hank Plan looked like at first.
Incidentally, the Democrats should use the woodshed until they learn not to pass their highly inflationary "stimulus" legislation. We need public works in this country, not an unemployment dole.
2 comments:
"We need public works, not an unemployment dole."
This.
A progressive talk show host named Tom Hartmann has been saying the same thing for years, but in regard to how our economic base had partially become driven by military production, which doesn't actually contribute anything to the economy as a "force multiplier" the way e.g. building roads does.
Well, the fact that the military secures trade routes with Europe and Asia is a pretty big boon to the US economy. Oh, wait, that's O&M (operations and maintenance) money, not SDD (system design and development). There are several programs, like most unmanned system development, submarines and the slimmed-down littoral combat ship, that deserve support. Most of the rest are just a dole for engineers and their HR minders.
Also, I think the reason we're seeing this (and the strait-up welfare) is it's incredibly difficult to do big works projects anymore. Between environmental regulations and lobbies, NIMBY and volatile comidites markets, the will required to build new roads, bridges and power lines is much greater than simply giving people money. Perhaps instead of a woodshed the need duct tape and rebar to stiffen their spines.
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