Money market trouble was the trigger, and it’s back. The direct
response was a $50 bln insurance fund, not in place yet. How about $200
bln in insurance, with a 15-minute turn-over for enrollment? Give the
FDIC a green light – already backed by Treasury, so no legislation
needed. Put everything in place that can be done without legislation
and that directly addresses the issues that confront us, instead of
issue that are behind other issues. Financial firms will need to worry
about staying in business, but they won’t have to worry about
liquidity. Moral hazard is a lesser concern.The big unfixable thing is that the government teased a hungry market
and then jerked the bacon away. Can’t fix that now, but there are other
approaches to the problems we have.
He is a commentator over at calculatedrisk.blogspot.com. My personal, oversimplified rule of thumb is that as long as trading continues The End of the World has yet to come.
It’s also worth considering the new equilibrium. If things do not totally tank right now, Paulson and Co. truly have zero credibility — for better or worse — the next time they claim that some particular policy action has to be done.
What counts as totally tanking? Does an evaporation of $2-3 trillion in market capitalization, yields on Treasury around 0%, and credit markets seizing up not count as tanking? How bad does it have to get before we can say this is very bad?
Next time? They’ve only got about 15 weeks before they’re back to academia or the think-tanks (I don’t believe Paulson has much future at Goldman), and will only matter for 8 of those.
On the bright side, the October war with Iraq everyone on the left predicted is fading in the rear view mirror.
Tyler, take a position. What do you think of Miron’s approach:
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html
? The worst part about this mess is that everyone who gave me a B- is having their day in the sun (Kotlikoff was the other one, when they were on the same faculty).
Bank are afraid to lend to each other because the don’t know who has bad paper. How about finding someone else to lend to?
If things do not totally tank right now, Paulson and Co. truly have zero credibility — for better or worse — the next time they claim that some particular policy action has to be done.
I’m much more frightened about the opposite – if things totally tank right now, does that give Paulson & Co. full credibility – so the next thing they claim must happen will get passed with no oversight in lightning speed?
How do you unfreeze credit?
Dave Barnes: I can vouch that physicists do talk that way. For example, they would express the marginal gain in magnetic field strength per extra dollar invested in T/M$ (Tesla per mega-dollar).
Tyler,
What are your thoughts on John Hussman’s “Super-Bond” proposal as an alternative to the Paulson Plan?
Secetaries of the Treasury are expendable. Paulson’s credibility disappeared once we saw the three page text of his rescue plan. Even Bush can just name a new one.
Chairmen of the Fed matter more. I saw Ken B.’s credibility going down the pan with the same three pages of paper. We need the Fed and we need a deal to rescue confidence in the Fed; amongst other things.
I had a typo above: I should have said, “Former Goldman CEOs do NOT normally return to the firm . . . .”
Now, let’s pray that those gays are either liars or idiots. When so much is at stake, kind words are hard to fine.
I can always appreciate ideas full of wisdom from others as long as those things they say are really worth it.
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