Because most philosophies that frown on reproduction don't survive.

Thursday, September 25, 2008

How can a Conservative Support the Bailout?

Kyle asks, quoting Glenn Greenwald, how one can support government intervention into the US economy on the massive scale that the proposed $700B bailout would constitute.

Greenwald, politically tempestuous but ideologically difficult to place, asks in Salon.com:
Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services? Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by many magnitudes.
Greenwald's position is, it seems, basically that "Wall Street greed" is responsible for the problem, and that "Wall Street" thus deserves to take the hit without help:
What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism -- where they reap tens of millions of dollars and more every year while their reckless gambles are paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapse? We've retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses. Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.
The "let the greedy ones take the fall" idea is widely popular throughout the left, so far as I can tell, reading around the last few days. On the conservative side, many are concerned about the precedent of the government stepping into the private sector in such a massive way. Mark Hemmingway of National Review Online writes:
Paulson and Fed Chairman Ben Bernanke would have you believe that it’s perfectly natural that the solution to a large financial crisis is throwing a large amount of money at the problem. They seem to hope that no one will notice that the problem with the bailout isn’t ironing out some of the fiscal particulars: It’s philosophical.

When government seizes control of a critical industry, that’s, uh, what do you call it? Oh, yes, socialism. “The government is telling us that capital and credit markets cannot, for several reasons, solve the current crisis on their own — only the federal government and its massive taxpayer base have the authority and the resources to solve it,” noted financial columnist James Ledbetter. “That is state socialism: the philosophy preached by the founders of the Second International, by the radical wing of the American labor movement, through the formation of the Soviet Union and its satellites, and now by Henry Paulson.”
While readily open to the criticism that I am in no position to throw stones when it comes to lack of knowledge, it seems to me that both of these approaches fail to understand what it being proposed, and why it is probably a good idea under the circumstances.

What a lot of people seem to have convinced themselves is going on here is that either lots of major companies are being "nationalized" (that is: taken over and run by the government) or else that the government is planning to give away $700B to large Wall Street firms in order to keep them from going bankrupt. Neither one of these is really true.

In the case of AIG, it has effectively been partly seized by the government to the extent that the US government now owns 79.9% of the AIG's stock. As the majority stock holder, and as the provider of a $80B line of credit, the government also demanded some management turn-over at AIG. However, AIG is not being actively run as a government institution. Rather, it's being broken up and its segments and assets sold off until the remaining core of the company can pay of the US government and become fully independent again. That is indeed a very large intervention, and I wouldn't normally like to see that sort of thing being done under non-emergency circumstances, but it is not the sort of active government running of major industries that socialism (or fascism) involves.

In regards to the $700B bailout -- the government is not planning (under any of the plans under discussion) to simply give money to companies in order to keep them from going bankrupt, nor is it buying all the defaulted mortgages and thus investing in a total loss. Rather, the idea is to allow the treasury department to buy and hold, and then eventually resell, assets which are currently in trading free fall due to market fears. It goes basically like this: Because of all the fear in the market right now, and because companies known to hold a lot of mortgage-based securities are seeing their stocks go into freefall, and because no one knows exactly how many of the mortgages rolled into a given security will go bad -- no one wants to buy mortgage backed securities at all right now. Because no one wants to buy them at any price, their effective sale value is approaching zero in many cases. And yet, the majority of the mortgages behind many or most of these securities will indeed pay off in the long run. So there is a value to the security -- if you are willing to hold onto it until the market for them picks up again or until the mortgages are paid off.

What Paulson is proposing to do is give the US Treasury a very large pot of money, and allow it to invest in these securities.

I'd say that Megan McArdle has it right when she says:
Any bailout plan needs to walk a very, very fine line. It must let straightened financial institutions sell the debt that is dragging down their portfolios. But it must do so in a way that does not convince future bankers that excessive risk taking can be nearly painless. That means paying just enough for the securities to keep the banks from failing, not enough to let them avoid painful losses.
Investing legend Warren Buffet (whose political views I almost universally disagree with, but who is a very smart guy when it comes to business) has weighed in arguing that a bailout is seriously necessary, but also pointing out that due to the buy, hold, sell nature of the proposed bailout plan, the US government might actually end up making a good deal of money at it before all is said and done. (He's also shown some confidence in the underlying "fundamentals" of the economy by choosing this moment to invest $5B, about 1/10th of his fortune, in Goldman Sachs.)

So, if done right, the $700B isn't just gone, in fact it's possible that the government would actually turn a decent profit on it in the end. The devil is, however, in the details. As McArdle and Buffet both say, it's important that the government buy these securities at a market rate. On the one hand, they're propping up the market by keeping these assets from going to a value of zero, which would result in cascading bank failures. On the other hand, they need to buy them at rates that reflect (and indeed are discounted below) what the securities are likely to eventually pay off at.

Unfortunately, all this needs a little bit of calm thought, and not many people seem eager to give it that. CNN, which over the last few weeks has been solemnly opining on the importance of experience and elite credentials, is now going full-throated populist and running a raft of v-logs by people describing "What I would do with $700 billion."

In democracy, we generally get the government we deserve, and my fear (given that I'm fairly well convinced that failure to do anything in this situation could cause a pretty massive economic meltdown as a result of the freezing over of the credit markets) is that we may find ourselves deserving to engage in populist histrionics rather than pulling our collective rear end out of the fire. It is satisfying, in a sense, to say, "Why should we bail out these stupid rich people who took unsafe risks," but if telling things sort themselves out really did result in the credit market coming to a standstill, we could end up seeing a pretty massive contraction of the GDP, and a lot of us who work for companies that give credit or get credit or have their cash-on-hand invested in money market funds would find ourselves out of a job. We could assure ourselves that Wall Street had deserved all this, but in the end it's not the Wall Street barons who would end up in the bread lines -- it's the low level workers who found themselves out of work without savings who would be suffering a lot more than the millionaires who had to cancel their European vacations and yacht orders.

But even with all these: Why do I not as a small government conservative (who's argued we should avoid centralizing health care because it would be bad for society) also oppose such a massive government economic action?

Well, I'm not opposed to large government action in principle, I'm opposed to it in most circumstances because I think it's often worse for society than private action. However, government (indeed, government acting in a centralized and semi-dictatorial fashion rather than consulting the maximum number of voters at every step) is often the best approach to large emergency situations that require risky and decisive action.

For instance, the presidents during both our largest wars (the Civil War and WW2) assumed powers that bordered on the dictatorial, and controlled massive portions of the economy through government spending. (During the peak of WW2, government spending accounted for 50% of the GDP.) Similarly, after a truly massive natural disaster, the federal and state governments are often the best positioned to move in large amounts of manpower, material and money in order to get things back up and running quickly. Waiting for things to get fixed organically might conceivably be better in some sense, but I think most people would agree that it's appropriate for the government to step in during such disasters.

There is inevitably a lot of foolishness and waste perpetrated by governments even in such dire situations (the whole "greatest generation" idea came later -- read the novels written during the 40s for commentary on the complete absurdity of much that was done during the war, despite the overall good aims and results) but because they are large and capable of acting decisively to achieve specific aims, they seem to be best suited to deal with certain kinds of situations. So my support for the government stepping in to try to stabilize credit markets is based on this idea that it is sometimes in times of huge crisis appropriate for the government to step is as and take massive and purposeful action. And in keeping with that kind of theory, it seems to me that the number of decision makers should actually be quite small, as with generals in a war. In that sense, I would support Paulson's request for no oversight -- though I'd feel a lot more comfortable if the legislation put one person or a small board of people in charge for the duration of the exercise so that it couldn't become a political football.

Why not, by the same rationale, declare an "emergency" and nationalize healthcare? Because while I think that the government can at times succeed well in taking massive action to achieve very specific objectives in the short term, it seems to me that massive centralized organizations (whether governmental or private) are very bad at running operations on a day-to-day basis while keeping their priorities straight. Providing "universal health insurance" is thus something I think the government (or any other large single institution) is very badly suited to do. I would support a huge centralized government action to deal with a specific health problem, say a sudden and deadly epidemic. But I think that if put in charge of everyone's day-to-day healthcare, it would almost inevitably make things much worse for us in the long run.

28 comments:

crankycon said...

I'm not sure what to make of this bailout, but to answer the title of the post: A conservative can support the bailout if a conservative believes that it will help, well, conserve our nation's fiscal outlook. Conservatism and free market economics are often linked today, and I would not try to argue that the two things should necessarily be de-linked, but conservatism does not necessarily imply blind reverence for the markets. Therefore, it's not necessarily wrong for a conservative to support such a massive government intervention.

Mind you I am not arguing in favor or against the plan, I'm just laying out what a conservative argument for it could look like.

j. christian said...

Conservative ~= Libertarian.

Your points are well made. People hear $700b and the word "bailout" and think it's a cash payment to Gordon Gekko. Those securities are most certainly not worth zero, whatever the percentage of defaults they contain.

And we've tried the hands-off approach in a financial crisis before. Recall the Great Depression, anyone?

No atheists in foxholes, no ideologues in financial crises.

j. christian said...

One other thing: Just because a bailout is necessary doesn't mean that the Paulson plan is the perfect one. Some liberal economists like Krugman have suggested the gov't buy an equity position in these firms instead of taking on the troubled assets. There've been other ideas, too, but speed is often more important than perfect policy in these kinds of situations.

Tom Simon said...

Many of these financial institutions are in the interesting position of being technically bankrupt without being insolvent. This happened essentially because of government regulations requiring them to carry securities on their books at market value, even when the market value is zero because there is (temporarily) no market. This is in general a good rule, but it breaks down in extreme circumstances. Surely the government that created the regulatory system should have some responsibility for cleaning up the mess when it breaks down.

By the way, due to the peculiarities of governmental accounting, it appears that the purchase of these securities will be treated as an expenditure rather than an investment. If the government buys $700 billion worth of securities this year and sells them at a large profit (let us say) next year, we could see something remarkable: a trillion-dollar deficit for this year, followed by a near trillion-dollar surplus for next. Isn't political math fun?

crankycon said...

And we've tried the hands-off approach in a financial crisis before. Recall the Great Depression, anyone?

Except that the Hoover administration did not have a hands off approach. In fact, when FDR was running against Hoover, in some respects he attacked Hoover from the right.

j. christian said...

Not Hoover, but the Fed. Bank runs led to bank failures, which led in turn to banks being more cautious about credit, raising their reserves, etc. The money multiplier (although not the monetary base) contracted massively as a result. The Fed could've done more to keep liquidity in the system and/or acted as a lender of last resort... but it *was* hands-off. That's what a "bailout" then would've implied, and we're seeing something analogous today.

Kyle R. Cupp said...

As a conservative, what particular dangers do you see in these bailout proposals?

DMinor said...

In government, one should always make the rules as if his political adversary is the one in power. Because, certainly, one day the adversary's party will be.

The problem with dictatorial powers is that often they are not relinquished, and they can fall into the hands of the unscrupulous.

Kyle: This is the A number one fear caused by any plan that aggregates power to the executive. Not necessarily that the first guy might do wrong, but that the next guy or the one after that might.

History is full of wise and benevolent despots followed by tyrants.

Darwin said...

Well, the Hoover administration was hands off in regards to the money and credit supply, but Hoover did sign the massive tariff act which helps freeze trade just when it might have been useful. He was active in some ways, but not helpful ones.

Kyle,

What scares me about it as a conservative?

I suspect that it will be used as precedent for much more unwise and unhelpful government interventions in the economy in the future.

I fear that the "oversight" which gets put in will end up with being open enough that it leads to a lot of lobbying and corruption.

I fear that through that or other means securities end up being bought above their market value and the government loses all sorts of money -- adding dollars to our debt that we can ill afford.

I fear that the intervention proves not to be enough, and the GDP falls 20% in 2009.

I fer that progressives manage to put in limits on compensation and other company-running issues so punitive that banks are too reluctant to offload their securities, and so the credit markets freeze up again, and so we have either a major recession or a depression.

So yeah -- I have plenty of fears about it, I just think that overall we'd be better off with it (if done fairly simply and unrestrictedly) than without it.

DMinor,

Good point.

My hope would be that we're still at the 200BC stage rather than the 44BC stage in comparison to the Roman Republic, and so we don't yet have the stomach for tyranny. But honestly, it seems like the US slips gradually closer to the imperial mentality and gradually away from that of the republic.

The Deuce said...

Hey, Darwin,

I'm against the bailout as currently conceived, for a few reasons:

1) Wall Street executives have a lot of their own money - a whole lot. They paid themselves 38 billion in bonuses last year. Generally, if you or I screw up some business venture, we have to use our *own* money first to keep it going.

If these guys are so concerned about keeping their banks going, and so convinced it will be a disaster if they don't, then they should be willing to expend a bit of blood, sweat, and tears to make it work. They shouldn't be allowed to hold us hostage with fear, by saying that everything will collapse if we don't give them our money, just because they aren't willing to depart with a little of their own.

2. The government *might* make its money back, or it might not. I don't find the "It will actually *make* the government money!" case that persuasive. If buying bad mortgages is such a great source of government revenue, why not buy them all the time? Heck, why spend only $700 billion now? Why not $2 trillion? The more bad mortgages the better, right? Obviously, there are limits here, and this isn't a generally workable business model. Where's the exact limit? Well, I don't think we should be trying to find out.

3. Following on the previous point, what's to stop the government from having to spend another trillion or so on yet another bailout? What guarantee do we have that the same thing isn't just going to happen again? The existence of Fannie Mae and Freddie Mac was a huge part of the problem. I don't see Congress planning to abolish them as part of the package. And if we don't do that, what's the point?

4. I've also heard an argument that goes something like "government got us into this mess, so it's the government's job to get us out". I'd find this more persuasive if the government were actually *fixing* the things it did to get us into this mess. But again, I don't see us talking about abolishing Freddie and Fannie, or changing the operation of the Fed. The government is just throwing our money at the problem to "fix" the immediate symptoms. The argument amounts to "government got us into this mess, so its taxpayers job to get us out."

5. There's other ways of freeing up liquid money, such as various temporary tax breaks and easing of regulations, that should be a resort of higher priority than raw government spending.

6. The Democrats are piling all sorts of pork onto the Paulson plan, and since the plan is already so outrageously pricey, they seem to have kicked the pork up a notch. To them, it's just another (albeit particularly lucrative) opportunity to tax n' waste. Hell, I bet they wish they didn't need a crisis to do something like this.

So, if the Paulson plan passes, it will now have all sorts of crap that no conservative should be willing to put up with, such as giving 20% of any profits from selling the mortgages to ACORN, to help fund their voting fraud and their failed home loan program for unqualified buyers (which was the primary cause of this whole boondoggle in the first place). There goes the "it might make the taxpayers money" argument.

7. And, finally, we don't even know that there would be a depression without the bailout. And we don't know that there won't be without one. Perhaps it would just make things worse in the long run, and result in the government having more debt to boot. The Wall Street bankers have ways of getting some capital if they're willing to make some sacrifices, but even if they don't, we just don't know what will happen. It seems to me that in the face of uncertainty, we should err on the side of more liberty and a non-meddling government.

Tony said...

. As McArdle and Buffet both say, it's important that the government buy these securities at a market rate.

This is important, but care needs to be taken. Valuation is going to be critical, both what the value is and who is doing the evaluating. Buy them too low, and the banks holding them still fail. Buy them too high, and the bankers are rewarded for their greed.

How do we hurt those who deserve it without hurting those who don't.

There are goint to be bunches of foreclosures over this. The guy who lied about a residence being his primary so he could do a "no money down" loan deserves to be foreclosed upon. The poor person who took what he thought was his one chance at home ownership does not.

We have to do these forclosures by the book with no regard to race or any other secondary characteristic.

"Community organizers" using their clout to force banks to give loand to minorities who were bad credit risks helped get us into this.

Correcting those errors are going to help us get out.

j. christian said...

If buying bad mortgages is such a great source of government revenue, why not buy them all the time?

It bears pointing out that these mortgage-backed securities aren't solely composed of bad mortgage debt. Mortgages are bundled together across a spectrum of risk so that only a portion are the high default risk (which is higher than anyone expected, of course). And property is still collateral even on the bad mortgages, so the losses tend to get overstated.

j. christian said...

Also: we don't *know* for certain whether this will prevent a depression, but history tells us it's a strong possibility without the Fed stepping in. Go back and read about the causes of the Great Depression. Personally, I'd rather leave my ideology behind and pay the higher taxes and have more government involvement if it means no 2nd Great Depression.

The Deuce said...

It bears pointing out that these mortgage-backed securities aren't solely composed of bad mortgage debt. Mortgages are bundled together across a spectrum of risk so that only a portion are the high default risk (which is higher than anyone expected, of course). And property is still collateral even on the bad mortgages, so the losses tend to get overstated.

Okay, but that doesn't really answer the question. If buying bundles of mostly bad mortgages is such great business, why doesn't the government do it all the time? Heck, if it works so well, why are these companies in trouble? Obviously there's a limit.

And, in any event, even if they do turn a profit, the Dems are doing their darndest to make sure that the taxpayer never sees any of that $700 billion again (unless you happen to be into election fraud).

Personally, I'd rather leave my ideology behind and pay the higher taxes and have more government involvement if it means no 2nd Great Depression.

I don't want a Depression either, but you need to draw a line somewhere. Does it not annoy you that these execs aren't using their own money to get some capital, but are turning to your money instead?

How about if we need another bailout in a few years (which seems likely, since I don't see the dismantling of the institutions that caused this on the agenda - Heck, in ACORN's case, we're FUNDING them more). Would you be okay with that? How many bailouts before you'd say "enough"? 700 billion is a lot of money. Is there any amount you'd consider too much? What if it were 2 trillion? How about all this pork being heaped on by the Democrats? Does that upset you? How much pork would there need to be before you'd balk?

My point is, we're being screwed. The Dems, Wall Street execs, and special interest groups like ACORN are the ones screwing you. This problem *could* be taken care of while screwing you a lot less, and placing a lot more of the burden on the people who caused it. But, they know that you'll take what they give you anyways, because you're afraid of a Depression.

And if they need to do another bailout in a few years or months (which seems likely, since almost nobody seems much interested in actually fixing the causes of this catastrophe) they'll be able to hold the spectre of a Depression over your head and screw you again. And again. And so forth, until you finally decide that you're more tired of being kicked around by an expanding government than you are afraid of a Depression.

Where do you draw the line? For me, I've already drawn it. I figure, we're going to have to draw it eventually, so we might as well get it out of the way sooner rather than later.

j. christian said...

You have to remember that herd psychology is in effect here, just as it was on the upside. Before, no one could "afford" to be left out of the real estate boom; now, no one wants to touch it. The truth, of course, is somewhere in the middle. Those asset-backed securities aren't worthless, but the market is treating them that way. Market failure (broadly defined) is *the* primary reason for government's intervention in any area of economic activity.

You're right that this is just a short-term fix. The longer term problems that caused this mess are being talked about by everyone I've listened to. Unfortunately for free-market ideologues, it's going to require a lot more regulation and oversight, from Wall Street to your local mortgage broker. I'm okay with that. I'd rather have fewer asset price bubbles in the future, thank you much.

Even though it's a short term fix, some type of restoration of credit market confidence by the government is absolutely necessary. That is, unless you like the Grapes of Wrath lifestyle.

Darwin said...

Duece,

I do understand your concerns, and some of them I strongly agree with. (For instance, I'd say that any profits on this should go directly to paying off the national debt and no where else. I really don't want any pork layered into this.)

However, I think a few of your points are incorrect in part.

For instance, on the question of why rich Wall Streeters don't buy up these securities themselves: Some of them are. A number of hedge funds have started snapping these things up on the theory that they're bottoming out are worth more than they're currently selling for. (Which is starting to be obviously true.)

However, there are severe limits on who can get away with buying these things because people keep freeking out and cashing out of any fund which includes stock or bonds from any company known to hold mortgage assets. So for instance, when several money market funds (which are supposed to be dead safe since they're made up entirely of short term debt from very credit worthy companies) were reported to be holding short term loans to companies like Wachovia and Lehman and Goldman, people started jumping out of those money market funds to the tune of billions of dollars, which caused the funds to go bust because they were having to dump assets so fast to make the payoffs that they single-handedly devalued their holdings and could no longer cover by selling.

What this means is that banks and brokerages are mostly not able to borrow in order to buy and hold these themselves -- especially because since they have next to no value they show it as expense that puts no assets on their books.

It's kind of like a stampede for the door in a huge auditorium. You know that people need to stop, turn around, and hold the surge back lest everyone by crushed trying to be the first one out -- but if just one person turns around and tries to do it himself, he will almost certainly be trampled. You need a guaranteed way of making sure that a whole lot of people turn and hold the crowd back at the same time, and that's essentially the purpose of a single, massive bailout fund.

Now without question Fannie and Freddie should be broken up and fully privitized later. And some smart regulation (hopefully not the suffocating stuff that the Dems will want) will be needed to prevent this kind of market failure from taking place in the future.

But since today the credit markets are starting to seize up again -- and some large corporations will start not making payroll soon if that happens -- I hope that they go ahead and pass a decent form of bailout sooner rather than later, and then sort out all that other messy stuff afterwards.

j. christian said...

Darwin,

You raise a very good point. Even in the midst of all this, people are taking an equity stake in troubled firms. JPMorgan buying out WaMu, Buffet taking equity stake in Goldman, etc. So it's not just the government stepping in and bailing out.

If you're not scared enough yet, go read this post over at Mankiw's blog:

http://gregmankiw.blogspot.com/2008/09/if-i-were-member-of-congress.html

Not making payroll? Yikes. There is no guarantee this plan will work, or that another bailout will be needed... But there's a pretty grim outcome likely without one.

Darwin said...

Yeah, that's exactly what I've been concerned about -- rather personally as I work at a Fortune 100 company.

That and I bank at Washington Mutual.

Here's hoping that having a front-row seat to the effects of all this doesn't turn out to be too exciting.

Anonymous said...

The Blackadder Says:

If a lot of companies aren't going to be able to meet payroll Tuesday if a bailout doesn't pass, then it's not clear how passing a bailout bill today would allow them to do so. So we'll see soon enough whether or not this actually happens.

j. christian said...

As I understand it, some of the short-term credit markets like the commercial paper markets can clear pretty quickly. If there's a bailout plan passed today or even Monday and credit markets respond favorably, I don't see why companies wouldn't benefit from that. We'll see, I suppose.

Darwin said...

The issue is not that the companies are on the brink of bankruptcy, but rather that many companies keep their cash-on-hand in money market funds. Money market funds are composed of short term commercial and treasury paper.

Now, the problem that we were having last week is that there was a run on the money market funds as a result of fears about commercial paper held by money market funds. A few money market funds hit the point where they were having to dispense securities instead of cash a week ago, because they were being hit with so many redemption requests.

Now the potential problem next week, or in the very near future, if it becomes clear there will be no bailout, and if the credit markets seize up, is that there will be a truly serious run on the money market funds -- by among others those companies that have their cash on hand there. Companies would then turn to banks for short term loans, but with banks cutting credit lines left and right, they might be turned down there as well.

As so we might have companies which on paper have plenty of cash not being able to meet payroll simply because there is a run on the credit markets.

The FDIC is now backing money markets, so this would result in the FDIC having to make those payments. So we'd end up with the money coming from the taxpayers anyway, but in a fashion that causes a lot of chaos in the meantime.

It's a worst case scenario, but it's not clear that it's a terribly unlikely one.

Anonymous said...

The Blackadder Says:

At the moment, the talk seems to be that any bailout won't be happening until Wednesday. If so, I guess we'll get to see to what extent the "won't meet payroll" line is real, and to what extent it's just scaremongering.

j. christian said...

An interesting counterproposal to Treasury's plan:

Shimer email

This might be a better idea, IF they can figure out how to make it work in time.

Darwin said...

Hmmm, as I read it over, I realize that my last attempted explanation did not make any sense. Maybe I'll just leave that one to the economists.

As for a Wednesday finish -- I would imagine it would be more the panic having to do with knowing there _wouldn't be_ a bailout rather than the availability of the funds themselves that would effect the short term credit markets. But as to what will happen. We'll have to see.

Certainly, I hope that all this is just excessive fear. (Which is what tends to cause market failure, after all.) I guess what causes me to be rather cautious about this, while I'm generally pretty blithe about claims of impending doom, is that in this case it seems to in many cases be the largest experts on the topic who are most worried, while the mass of people are not. Which seems like the opposite of what one sees in regards to theories I generally don't worry about much such as "peak oil".

Still, time will tell.

Anonymous said...

The Blackadder Says:

While most (though not all) people who know something about financial and economic matters seem to favor some sort of government action to deal with the current financial situation, the general consensus of experts I've seen is against the Paulson plan. (See here, here, here, here, and here). Indeed, the whole point of the letter by the unnamed economist about the unnamed third parties about the unnamed companies that might not meet payroll is that the economics community is being too complacent about the current situation. I'll grant you that the populist arguments being made against the bailout are mostly garbage, but that doesn't mean the Paulson plan is a good idea.

j. christian said...

I'll grant you that the populist arguments being made against the bailout are mostly garbage, but that doesn't mean the Paulson plan is a good idea.

I agree; I think I said so from the start, that it wasn't necessarily the best or the only plan. But decisive action tends to be best in financial panics. "Decisive" and "swift" to be defined, I guess.

Darwin said...

Yeah, I'm not necessarily wedded to the Paulson plan at all -- though I'm not impressed with most of the alternatives that actual members of congress have suggested.

Bernard Brandt said...

Dear Darwin,

I think that I have something which shows how a fiscal conservative or a libertarian conservative could wish to obtain some sort of bailout.

Read here:

http://pauca_lux_ex_oriente.blogspot.com/2008/09/economics-for-dummies.html