Thursday, September 25, 2008

Your tax dollars at work

If you've been having trouble following the soap opera that is the market bailout (there is no Wall Street anymore, there are no extant investment banks, so I feel funny calling it the Wall Street Bailout), Krugman has a good catch-up post bringing us up to Wednesday. Here are some highlights. If you're interested, read the whole thing.

Before I explain the apparent logic here, let’s talk about how governments normally respond to financial crisis: namely, they rescue the failing financial institutions, taking temporary ownership while keeping them running. If they don’t want to keep the institutions public, they eventually dispose of bad assets and pay off enough debt to make the institutions viable again, then sell them back to the private sector. But the first step is rescue with ownership.

That’s what we did in the S&L crisis; that’s what Sweden did in the early 90s; that’s what was just done with Fannie and Freddie; it’s even what was done just last week with AIG. It’s more or less what would happen with the Dodd plan, which would buy bad debt but get equity warrants that depend on the later losses on that debt.

But now Paulson and Bernanke are proposing, very nearly, to do the opposite: they want to buy bad paper from everyone, not just institutions in trouble, while taking no ownership. In fact, they’ve said that they don’t want equity warrants precisely because they would lead financial institutions that aren’t in trouble to stay away. So we’re talking about a bailout specifically designed to funnel money to those who don’t need it.


So, three points:

1. They’re still offering something for nothing. ...
2. They’re asserting that Treasury and the Fed know true values better than the market. ...
3. Even if it works, the system will remain badly undercapitalized. ...

Palin's interviews keep getting worser and worserer. I'm having to invent parts of speech just to keep up with them. Seriously, no VP candidate should make you cringe when they talk about the issues. Listen when Palin talks about McCain's record on deregulation (near the end, I think).

I view McCain's "campaign suspension" (TV ads, stump speech at Clinton Global Initiative, and surrogates all over the news media notwithstanding) and flight to Washington as a jump-the-shark moment. I thought the election was over when I found out who Sarah Palin was... I keep thinking the election is over. Expect more shark-jumping as the polls get worse for him. I said earlier that Bush has governed by jumping from crisis to crisis and I believe McCain is campaigning from crisis to crisis.


bunky said...

Let me see if I got this right Sarah. McSame is for regulation but not really because he is a maverick and has voted against his own party. Get a clue, he has been against regulation since Ronnie was in office. Sometimes it's really hard to get in all of the stump speech talking points in an interview, but you are certainly trying!

Dan Lewis said...

I know, it's seriously painful. If you watch The Office, it's like watching Michael give a presentation in the conference room... you just don't know what he's going to say next, and the hair on the back of your neck is standing up the whole time.

Another thing I think it speaks to is their unfamiliarity with each other. Palin really doesn't know McCain's history as a legislator... McCain hired a virtual stranger for the biggest job of her life.

Vince said...

Now. Now. Be kind. She is in way over her head. It will take 4 years but she will get a good education if she becomes VP. She is not dumb, but she has lived in a very small world until now.

Fortunately for the nation, McCain's chances of being elected are shrinking with each week.

For me, it has been more embarrassing to watch conservative Christians embrace Ms. Palin without reservation than to watch her struggle in the deep waters of national and international politics.

Dan Lewis said...

I don't know if I can really let Palin off the hook here. You could buy the idea that she is a complete babe in the woods, and McCain deliberately threw her to the wolves to get a few percentage points from the pro-life voters. I'd say that if that is the case, she really doesn't belong in the VP slot because she didn't get what was going on.

However, I think it is all more calculated than that. Palin went into this with eyes wide open, knowing she really doesn't belong "one seventy-two year old cancer-survivor heartbeat away from the presidency", with her nonexistent background in national issues, and her apparent lack of interest in the same, but hubris or self-aggrandization motivated her to do it anyway. Sowed the wind, reaped the wrath of the bloggers?

I think there are a lot of reasons the pro-life vote has embraced Sarah Palin. She's one of them, obviously. But is she ready to assume that mantle of presidential responsibility if called upon? No. That's the VP's most important job, that's what the VP does all day.

It should be interesting to see this election play out. Like I say, I think it's all over but the shouting... and the margin of victory. We'll have a fascinating four years if Obama gets to 60% in the popular vote.