(Untitled)

[guns_n_butter]

Paul Krugman says it so I don't have to.
"So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.
As a friend said last night, we’ve become a banana republic with nukes."

Comments

[professormcjerk]

but it probably would've been more crazy to pass such terrible legislation. this one is hardly about partisan politics because it was right down the middle bad when it came to the handouts here.

[malleypa]

don't you guys live together?

[guns_n_butter]

I don't think Krugman thinks the legislation should have been passed as is. I haven't read anything by him that says so. It is a bad day in Washington when nothing can be done about this. Jeremy made this point to me and it rings of a certain grain of truth to me, it might take consumers going to the store to use their credit cards and them not working for this to sink in. Credit is a commodity and this country runs on it. What we really have is a lack of credit in this country.
The government doesn't need to hand out money it just needs to shoulder the risk. Which may indeed lead to handing out money. I just don't see the government buying these mortgages because the government can't be put in a position where it is foreclosing on people's houses.

[jr_bee]

Haines picked up on the central nerve of our conversation it seems. The real problem with people understanding the spirit of this 'bailout' (bad term for it from the get-go) is that this is really about liquidity and matters of scale. The government has such liquidity capacity that the transfer of these assets to it's balance sheet doesn't come anywhere close to threatening it's solvency, simply because of the scale and capacity of the government. The banks, on the other hand, cannot hold these non-liquid assets any longer because it is impossible for them to have access to further credit (to grant, a.k.a sell) to us once they become too leveraged. They are simply over-leveraged right now. It's not reasonable or desirable to say 'well let 'em be crushed under the weight of their own folly' for what should be obvious reasons to those who grasp the credit market and how it works and allows our economy to function

[guns_n_butter]

Again with the Krugman, ol' Paully K thinks the government bailout, if it happens, will look more like government backed investments.
"So now what? Like Jamie Galbraith, I’d rather see Dodd-Frank-Paulson, which is much better than the original plan, pass than not. The true cost to taxpayers will probably be close to zero, and it would buy some time"
Its not a shining endorsement. . .
"But I’m not passionate about this. The real financial rescue still lies in the future, probably under the Obama administration."
So what is he saying? This isn't a fix all, but its not going to cost us anything. So. . .what should happen Paul?
"My view, which I think is now shared by many economists, is that Paulson grabbed hold of the wrong end of the stick - he should have been seeking to expand bank capital, taking an ownership share in compensation, rather than trying to push up the value of toxic paper. In the end, that’s what we’ll probably do."
Thats good old fashion socialism.