The latest sign that almost nobody who writes the news understands what's going on with the economy: even the folks who support the bailout think it's going to cost $700bn. (see: http://www.newsweek.com/id/161529).
There are a couple of reasons for this. First is that no one seems to have actually tried to sell the idea to the public. Bush's speech focused on selling the idea that the economy is in trouble, not that the bailout is the way to fix it. (Michael Kinsey notes that this may be the first economic collapse in which our leadership has worked to convince us that it is in fact a collapse.) When Bush finally gets to the bailout, the first thing he mentions is that he's putting "$700bn on the line." Well, that's true, technically, but only in the same sense that when you buy a house, you've put whatever you paid "on the line." You don't expect to lose your down payment, and, if you can afford not to sell your house for a while -- i.e., if you have a mortgage that you can afford -- you are very unlikely to lose that "on-the-line" money.
The situation that might worry a new homeowner is what has bondholders dealing with massive losses -- what if no one wanted to buy? In that situation it might make sense for the government to take action to make sure that normal homes that would trade in a liquid market are once again trading. And while a fund for that might take lots of money, it would not have a price tag anywhere near the size of the fund.
This is not to say that giving Paulson -- where was he on explaining the situation to the public, by the way? He must have thought the crisis wasn't too hard to figure out since he thought the solution was 2.5 pages long -- should be crowned king and handed money to sprinkle at will on the banks. But other than creating oversight procedures, allowing congress to quickly suspend the program if it smells a rat, and giving congress upside in the banks who use the relief fund by forcing them to sell non-voting shares or senior debt to the government -- all of which are in the bill that was defeated yesterday! -- there's just not much that can be done. (I suppose you could complain about not allowing judges to rewrite mortgages on the fly to help homeowners, but that doesn't sound like what Republicans normally get mad about.) At the end of the day, someone has to name a bid for the bonds that's high enough for a bank to hit it, and that level clearly isn't where the market is right now.
The alternative is to risk asset lock, credit freezes, and deposit runs. In which case we should all go get our money from the bank, go to Wal-Mart, buy a stack of canned goods and a Smith & Wesson, and wait for the next congressman who voted "no" to walk by.
Tuesday, September 30, 2008
Subscribe to:
Posts (Atom)