Ilya Somin, my colleague over at GMU Law, rightly worries about the slippery slope that the bailout plan is likely to perch us upon.
Today’s column by the Washington Post‘s David Ignatius provides further evidence that this slope is both steep and slippery. Mind – Ignatius himself isn’t worried about slipping too far down a dangerous slope; rather, his proposal is evidence of how easy, in fact, it is to slip:
A truly Keynesian rescue plan should do more than bail out foolish
investors. How might the pieces fit into a larger design? Well, if the
taxpayers are going to acquire a stake in the nation’s largest
insurance company, perhaps that company can be the cornerstone of a new
system of universal private health coverage. If the taxpayers are going
to acquire $700 billion in real estate assets, perhaps the eventual
profits can fund new investments in infrastructure or energy technology.
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The slope is far steeper and slipperier than some new program in the Department of Energy or even a universal health insurance program. The draft proposal does refer to "mortgage-related assets" specifically, but "commercial mortgages" are included, as well as any asset "related to" a commercial mortgage, and I've already heard talk of broader "asset" categories. The linked draft is all of four days old, so the central planners presumably have added many details since.
Officers of U.S. corporations have been leveraging corporate assets to the hilt for decades. When GM and Toyota have roughly comparable sales, but GM's "equity" is worth five percent of Toyota's, what is the equity really worth? You obviously need to be Harvard MBA, like Henry Paulson, to figure that out, because we can't trust the market to value these complex securities, according to Paulson.
And what is GM worth after adding another $3.5 billion in debt, as it's doing now?
And how many other U.S. corporations are in the same boat?
And how much of GM's "equity" and how many of the company's bonds are on the books of "private sector" pension funds in the U.S.?
Why the meltdown of mortgage backed securities now? It's all about regulation and political favoritism toward poor people in blighted neighborhoods with overpriced housing? Poor urban minorities suddenly rule the roost in the U.S.? I don't think so.
It's about an intergenerational imbalance between rent seekers and rent payers, and the silence at this point, the year the payroll tax surplus peaks, is deafening. Did political favoritism play a role? Sure, it did. It always does. Politicians presumably pressured FNMA to sell these securities, but no one forced "private" pension funds to buy them, along with credit default swaps from AIG. An obsessive focus on half the story is always a sure sign of deep denial.
"…an 'avalanche' of Potomac economic tyranny…"
Good one!
He said: "eventual profits".
I'm smiling.
We must be sure that the eventual profits fund the right priorities by spending them before they're realized.
McCain suspends his campaign, because the Paulson proposal is stalled and we're "running out of time". Meanwhile, the S&P 500 rises two percent, and Treasuries drop.
What does McCain know that investors in the S&P 500 companies don't know? Who is running out of time, and what are they running out of time for, besides an opportunity to spend another trillion bucks, financed by selling Treasury securities, before the election?
Actually, Ignatius is brilliant! By saying that $700B would by us funding of alternative energy, he just won the votes of all those dullards that appear in the BP commercials demanding that oil companies do something different.
Now, here's how bad the economy is. There are now Americans taking jobs away from illegal aliens. That's how bad it's gotten.
— Jay Leno
sam; i thought the same thing the other day when reading an article linked from Munger's site:
http://www.charlotteobserver.com/opinion/story/208837.html
in it, an econ professor from NC state argues:
wow. as if the federales could manage something as complicated as these assets and turn a profit doing so. mmmmhmmm.
This proposed purchase of distressed assets by the federal government (i.e., taxpayers) might actually work out to the benefit of the government treasury, but is unlikely to ever benefit the taxpayer. If, in time, the new facility makes any money, that money will be immediately collared by congress and spent. Count on it.
There is too much opportunity for political mischief in setting the purchase and resale prices of these distressed assets that even if a principled consortium tried to manage these assets ethically, the politicians would find (or are creating) a loophole to corruption. The lure of $700B worth of power will steamroll over the minority of straight shooters trying to do things right. I'm sad.
You don't have to worry about it. It is sort of like the supply-siders helping to increase government revenue, so the government can reduce its size.
Exactly. "It'll increase state revenue" is the worst excuse I've ever heard for a tax rate cut. It that's the story, I say, "Raise 'em!".
They've almost all been Keynesians all along.
Perhaps we should tie "eventual profits" to the funding of the pensions for the bureaucrats and congress. No profits, no pensions beyond any double dipping in the SS system.