In addition, the radical left…darn redundant again, the left has the modus operendi of blowing up the building, then decrying the wanton use of explosives by vicious radicals and demands laws to restrict explosives. And, all that without ever admitting that it was they that blew up the buidling in the first place.

Of course the sycophantic press reports it as, "Building blown up, could it be a right-wing conspriacy?" even though the press knows the truth because it was they who held the fuse steady as the radical left….darn there I am redundant again, the left put the match to the fuse.

There is no retreat or compromise with those who wish to enslave you, or destroy you if they fail to enslave you. We have nothing to gain from retreat or compromise except failure.

I know I am preaching to the choir but I stumbled on this soap box and the rest is history.

"…your intellect isn't up to the effort."

Which makes me think… did you ever notice how incredibly complex the takers' rationalizations are? That is, they tend to apply an incredible percentage of their available intellect to rationalizing their behavior. Think of the volumes written to justify (rationalize) socialism, fascism, communism, progressivism (not to mention various forms of theism), and many of them are among the most famous writings in all of literary history. So perhaps intellectualism isn't all its cracked up to be. It may, in fact, be nothing but a symptom of an underlying pathology. The truly rational person keeps it short and to the point, because the rational is seldom overly complex.

Truth cuts deep, eh?

But, remember my trumplet, we are supposed to behave and give rational for our posts.
So, tell us how capitalism caused the mess at fannie mae and freddie mac. Tell us how it is capitalism that causes pigs to crowd up to the trough for what they haven't earned.

Sorry son, but your intellect isn't up to the effort.

After 8 years of what many consider a fascist regime in Washington, his/her comment is outrageous and absurd.

I find Vidyohs to be the dumbest, most obnoxious commenter. He or she is a broken record calling everybody in government and whom he doesn't understand or agree with "a socialist pig" or worse. That's a variation on 'capitalist pig' which is the usual dipiction of those that clamour at the trough via lobbyists or through outrageous executive pay feeding bins.

Vidyohs is over the top in insults/ad hominems, and he casts a pall over the comments section here at the Cafe. I would cast him/her adrift, if I could, by cutting the tether to this blog. Get your own boorish blog of utter opacity, indeed!

Certainly I was generalizing (just a bit). Playing with ideas. Thanks for the breakdown.

As for better incentives…I think it would be better if the government didn't mangle incentives by providing guarantees and virtually forcing creditors to extend credit to poor credit risks on loose terms. To provide disincentive for engaging in poor business practices, the government should step aside and allow poorly managed firms to face the natural consequences of bad decisions – failure. This is my suggestion for the type of smart incentives the government can offer.

Randy,

Unless I misread your post, you are saying that via regulation, the government is indirectly controlling productive resources . If that's what you're saying, then I have made that argument myself, so I obviously agree with you. As I read it, you are also saying that firms are manipulated to offer the amount of credit the government wishes on terms the government wishes, thus these firms are merely fronts for the government. I think that's more true of commercial banks and much less true for investment banks. Investment banks don't lend directly. Their primary roll is to facilitate asset allocation. They may also choose to hold securities like MBSs as well as perform the secularization and sell them to customers. The ability to sell these types of ABS adds to the demand for such loans, which provides incentive for originators to lend more, but the I-banks are not primary lenders and can't be forced to secularize, sell and hold mortgages (or any other asset). The best the government can do there (as far as I know) is to provide guarantees and add other sweeteners to the market to rustle up demand. But, I think the investment banks have a lot of culpability in this mortgage thing as they clearly performed no due diligence on the assets they were securitizing. Small investment banks stayed out of this dangerous game and they are not going under, but they are paying for the bailout of the large banks which played fast and loose.

The NY Times headline should read: "Predictably, as we're handing out money, people are lining up to get it."

Why are we calling the lobbyists rotten, and the government rotten, when they are, in the basic parlance of economics, responding to incentives?

I don't get the rampant undercurrent of distrust and dislike in the comments. This dance, whether you think it's pretty or not, is basic behavioral economics perfectly illustrated.

What we ought to be doing is debating what incentives are smart for government to offer, and how to get government to offer them, no?

This analysis begs an obvious question. Aside from the obvious political considerations, why can't the Treasury provide DIB financing or guarantee this financing from other creditors during a bankruptcy reorganization? As I understand the problem, GM needs protection primarily from its own pensioners and contracts with its employees.

Since GM seems likely soon to become the bailout of the week and top story tonight, I'd like to hear someone expert in bankruptcy and GM's debt burdens discuss this issue.

"I'm not sure I understand what load boutiques must carry. As far as I'm concerned, I don't think anyone should ever carry the load of lending to people who will never pay them back."

I agree, but lending isn't the business that these folks are in. They are in the business of complying with the wishes of the government. Let me give you an example. The system I work on has an option to process credit cards, but we can't do it directly. We have to go through a third party company that specializes in being in compliance with government regulations. We tried for awhile, but the rules change so frequently that it was impossible for us to keep up and remain focused on our core business. The government won't admit to owning this company, and the people who work there probably don't like to admit that they work for a defacto government operation, but that is nonetheless the reality of the situation. The lending institutions may like to think that they have the option to just stop lending to high risk borrowers, but if they try it the government will simply replace them with someone who will. And in effect this is exactly what they are doing now. The government is dropping the pretense of being a lender of last resort and becoming the lender of first resort. They screwed up, and now the relationship has become explicit.

Perhaps the difference in our opinions vis a vis being born a maker or a taker is a matter of perspective more than anything else.

For instance if you are as much as 10 years younger than myself you would, I believe, have a dramtically different perspective than I; then, if you were middle class or better through your early childhood we would have a different perspective; then, if you were urban rather than rural as I was we would most likely have a different perspective; then, if your interest never extended to anthropology as mine did that too would give us a different perspective. If all those things are true then we would truly have a different perspective of considerable magnitude.

I don't know those differences exist but I think it would be fun and educational to kick back with a pint of bitters and spend some time exploring the idea.

I believe that we may be getting a little off topic now, so let's leave at the agreement that there are makers and takers; and leave whether it is birth or enculturation to another day.

Randy, I'm not sure I understand what load boutiques must carry. As far as I'm concerned, I don't think anyone should ever carry the load of lending to people who will never pay them back. That's the game the government is now playing in place of private lenders. It's trying to convince people who have every incentive to abandon their mortgages not to do so (good luck!). The only way to do that is to reduce the price of their houses and somebody has to pay the difference. Think you and I will get a thank you note? The government types get all stressed out by events like these (which they do their best to help create) because the public tends to blame them for all and sundry. The voting public may not be able to do anything about the falling value of their houses, but they can vote an incumbent right out of office.

speaking of which…the home buyers are getting a pretty sweet bailout too. Announced this week. All you have to do to qualify is quit your high paying job (or you may have already gotten your pink slip) and stop paying your mortgage for 3 months and PRESTO! the government makes the mortgage fit your needs rather than making you and your lender go through the unpleasantness of paying for your mistakes.

I've got to figure out how to get in on this action to recoup some of the taxes I pay for this thing.

Okay, this is your business, and I'm just surmising. Question then; are the specialists and boutiques capable of carrying the load? Cause if they're not, then I think that maybe I'm surmising correctly. I think there's a reason for the panic among the government types.

No kidding. Buffett pretty much said exactly that (although with a different thrust) when he was telling everyone how bullish he was of the TARP fund. Wonder if he'll weigh in again now that Paulson's revised the prospectus.

Marking to market is not insurmountably difficult. Trust me – the boys marking the book aren't undermarking it. Whether buying a $1 asset at $2 "makes sense" or not depends on your goal. If your goal is to enter into a positive expectancy trade, then you would pay a little less than $1. If your goal is to break even, then you'd pay $1. If your goal is to hand out money to banks and transfer all the risk to the investors in your fund (in this case, taxpayers) then it makes sense to buy an asset worth $1 for $2, $3, $4 or any amount you want. What do you care? It's not your money anyway. But if you're going to overpay, then just be honest and hand out money to the banks. The charade doesn't make government look smarter. In any case, I think the moral hazard is pretty obvious. Even in the brief ten seconds between the time the TARP was passed and it became just another government slush fund, all and sundry were lining up to lay claim to it.

Randy,

I don't know that I agree that the banks are government monopolies. Not all lenders are banks and not all banks do the same thing. Certainly, regulation has raised barriers to entry but there are still plenty boutique banks and other financial institutions. The government did mangle incentives mightily, but particularly investment banks and Hedge Funds (which are not getting bailed out – yet!) had a lot more discretion and didn't act prudently. They continued to provide demand for securitized debt obligations without appropriate due diligence.

Personally, I think the government has plenty of choice to do a lot less than it's doing now. When the credit bubble popped, everyone had to delever. Deleveraging leads to sales which lead to decreased asset prices which leads the government to panic and mangle incentives even more. So, now that the private sector is deleveraging, the government is levering up to provide credit to every zombie with a strong enough lobby. None of this is mandatory.

Good parents tech their children self reliance because it is in their (the parents) best interest. What parent want to wipe their kids arse or spoon feed them any longer than is absolutley necessary? Parents have an incentive to teach self reliance.

The problem with government is its current form is that they don't recognize any incentive to make its citizery self reliant. I would argue that they need a dependent citizery to acquire votes, power and money. Politicians have failed to learn that a self reliant citizenry holds any benefit to them. As long as they have producers to steal from their needs will be satisfied.

Kevin S. (not Kevin)

P.S. Don't flame me for suggesting that I see gov't as my parent. I don't. I use the analogy as a comparison between entities that make rules, enforce rules and distribute justice….and to continue with your use of childhood weaning.

The problem, it seems to me, is that the financial institutions are, in effect, government institutions. They have been granted monopoly rights to act in the interests of the government. This was never stated explicitly, but that has been the effect of generations of government involvement. But when the monopoly begins to fail, the situation becomes explicit. It isn't just the financial institutions that are failing, it is the government itself. The government is bailing itself out – it has no choice. A similar situation exists with the auto makers. There is no homegrown alternative to the big 3 – that is, no competitor that the government can manipulate to its ends. So the government will bailout the automakers – because, again, it is bailing out itself – and it has no choice.