What do the Republicans want?

by on September 26, 2008 at 6:57 am in Sports | Permalink

Under the alternative Republican plan, the government would set up an
expanded insurance system, financed by the banks, that would rescue
individual home mortgages. The government would not have to buy up the
toxic mortgage-backed assets that are weighing down financial
institutions.

Here is the story.  Is this the Jeffrey Ely plan (you heard it here first!)?  Do any of you have more information?  Does the Paulson-Bernanke rejection of this plan count as a very bad signal about the immediate solvency of major banks?

ken September 26, 2008 at 7:31 am

The Ely plan calls for the government to buy the mortgages directly. The House plan calls for the government to expand mortgage insurance to cover more of the bad mortgages. When the mortgage default is presented to the insurance company for payment, who comes out owning the mortgage? If the mortgage insurer doesn’t come out owning the mortgage, then the House plan is not the same as the Ely plan. Or does Tyler think the Coase fairy will appear? How would that work?

8 September 26, 2008 at 7:33 am

“I suspect that part of what we’re seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,” said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.
Link
“I think most of what has been said by both campaigns about economic stuff is ill-informed and ill-advised,” he said. Asked for specific problems, O’Neill said: “Everything.”
“It is possible to re-liquefy the credit system without ‘We the People’ owning $700 billion worth of homes,” he said.
Link
Treasury “is totally dominated by Wall Street investment bankers” and “cannot be relied on to objectively assess” the impact of government policy on the financial industry, Allison wrote in a Sept. 23 letter to Congress. The letter was verified by Bob Denham, a spokesman for BB&T, North Carolina’s third- largest bank.

Allison, 60, said Congress should “hear from well-run financial institutions” as lawmakers consider the plan, which seeks to ease the credit crunch by buying troubled mortgage- related assets. Under Allison, Winston-Salem, North Carolina- based BB&T avoided the subprime mortgage market, whose collapse led to the credit crisis. BB&T has risen 26 percent this year, the best showing in the 24-company KBW Bank Index.
Link

ken September 26, 2008 at 8:54 am

Thanks y81.

Ron September 26, 2008 at 10:27 am

I know that we are all talking about the downside. How about the upside? Which plan is a better deal for US taxpayers if the market recover?

Andrew September 26, 2008 at 11:11 am

“Why should this route cost any less than the Paulson plan?”

Economists can give me a smackdown, but is it close enough for government work to say this? At equilibrium they would cost the same. However, right now the loss on the mortgage securities is 100% because noone will buy something they cannot value. Whereas after we know better how many people are actually going to make their payments 100%-X.

Yan Li September 26, 2008 at 11:45 am

One has to suspect that all this rush and the “close-mindedness” to the seemingly more sensible alternatives suggest timing is key and the real mess happening is bigger than it looks. I give that scenario p=.7. Another scenario is that all the rush is designed to evoke a sense of urgency while the insiders know the underlying crisis is not sever enough to justify imprudence, in which case we have to speculate the motivations of the insiders. I give this scenario p=.05. The third scenario is that the urgency is based on a miscalculation of the severity of the situation. I give this p=.25.

Gabe September 26, 2008 at 12:18 pm

wow Yan li,

It is hard to believe anyone intelligent enough to read this blog actually comes into the situation giving a .7 probability that a politician is being honest and is acting as a angelic benfactor for the common american taxpayer.

The situations are also vastly oversimplified. Each of the actors has different amounts of awareness and types of motivation.

For specific individuals like Paulson I’d say

p1=.01
p2=.8
p3=.19

…we know he was lying already to a huge degree because they said the world would be over if we didn’t get this passed by Thursday!

For a bunch of congressmen I’d bet the p3 is much higher…..but in no case is p1 a .7.

David September 26, 2008 at 12:52 pm

David K. Levine, quoted above, is spot on.

Yan Li September 26, 2008 at 1:04 pm

Gabe,

Granted I am not American, I am Chinese. My estimate of the integrity of the collective may bear a systematic bias. If you look at the World Value Survey. The Chinese is just about the most trusting people in the world. Our trusting disposition has made us more receptive to, if not even prefer, the authoritarian style of government. It is 5000 years of history coded in my genes. You may challenge my intelligence, but you can’t challenge my preference :)

shecky September 26, 2008 at 3:23 pm

What Republicans want is a clear cut issue they can uniformly grandstand on. They are not getting it with the current financial crisis.

Bob Murphy September 26, 2008 at 3:52 pm

Do any of you have more information? Does the Paulson-Bernanke rejection of this plan count as a very bad signal about the immediate solvency of major banks?

OK let me be the conspiracy theorist: Tyler, is it possible that the Paulson-Bernanke rejection of the the plan counts as a very bad signal that they are trying to pull off a major heist?

These numbers are mind-boggling. We have to update Eisenhower’s term to be “military-industrial-financial complex.”

Moo X September 27, 2008 at 1:33 pm

House Republicans got a hot deal they won’t let go easily. Think about it. If the situation is really that bad, then their plan has the same advantage as Paulson plan. If Paulson’s plan works, then their plan must work too. They got credit. Now, if the situation is not that bad, they’re heroes again.

I say, God Bless You, House Republicans. ;)

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