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That was the argument for Fanny and Freddie. Didn't seem to work, and I bet it won't this time. WAMU is next.
by ojbyrne 18y ago
That was the argument for Fanny and Freddie. Didn't seem to work, and I bet it won't this time. WAMU is next.
- sd 18y agoJust to clarify, I meant that the other course might result in much more massive decline than has already happened. Think 22 sigma level -- like the '87 crash. Bailing out distressed financial firms is almost expected now. Thus, if it doesn't happen, then a lot of market participants may reevaluate their choice to invest in firms with heavy debt. Obviously, these bail outs have their costs, such as the value of money lent as well as increased moral hazard, but it's worth considering whether this is worth the potential cost of a market collapse to the whole economy.
- helveticaman 18y agoThe market collapse of a whole economy? How's Google going to get torched by this? Or Boeing? Or most exporters?
- quasimojo 18y agobecause they are part of an integrated economy. where will google's advertizers find their ad budgets in a stagnant economy? boeing is no different. would these firms be as adversely impacted as wamu? no. but everyone suffers.
- ojbyrne 18y agoMore directly related to Boeing, according to the NYT (http://www.nytimes.com/2008/09/17/business/17aig.html http://www.nytimes.com/2008/09/17/business/17aig.html), AIG has an aircraft leasing division that was planning to buy 73 aircraft this year.
- gills 18y agoIn the short term the lack of credit availability could dent manufacturers, but those businesses that make real things that people want should be ok if they can survive until credit is again available to their customers.
- lacker 18y agoYou don't think the Fanny bailout "worked"? We don't have the luxury of seeing what would have happened if we hadn't bailed them out. To make the pro-bailout argument more clear, here is one reputable economist predicting that if we had let the FMs default, the dollar would drop about 30% and unemployment would double, in about a week. http://www.marginalrevolution.com/marginalrevolution/2008/09/could-you-clari.html http://www.marginalrevolution.com/marginalrevolution/2008/09...
- byrneseyeview 18y agoSo it would be like a 19th-century panic/recession, without hard money. He's omitting the part where, since we aren't subsidizing stupid decisions, stupid decisions don't get made and the economy recovers very quickly.
- lacker 18y agoIf only subsidizing nothing was sufficient to prevent stupid decisions from being made!
- ojbyrne 18y agoYou're correct, I was glib. But I think those things will happen anyway - they'll just take longer than a week.
- quasimojo 18y agoagreed. and WAMU will not be saved. they are just another retail bank.