2 ms·

If feelings of mistrust are your guide then it should be obvious that the bailout is an evil racket. Cui bono? Outstanding consumer and business debt is somet

If feelings of mistrust are your guide then it should be obvious that the bailout is an evil racket. Cui bono? Outstanding consumer and business debt is something like $40 trillion. Way more than $700 billion of it is at risk. The bailout bill is so small relative to the real credit markets that it can ONLY possibly be a political act for certain well connected individuals. It cannot drive the macroeconomic conditions related to the whole credit market.

davidw 18y ago
"certain well connected individuals" Sounds like conspiracy theory territory to me, but maybe I'm misconstruing what you're saying. On the surface, your argument regarding 700 billion vs 40 trillion sounds plausible, but then again, it doesn't seem to be convincing guys like Larry Summers, Mark Thoma, or The Economist ( http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=12326538 http://www.economist.com/world/unitedstates/displayStory.cfm... ), and I don't think they're all in on the plot, yet are pretty smart. On the other hand, if things don't go to hell without the bailout, it will show that Paulson et al. were indeed quite wrong.
- kingkongrevenge 18y ago
  There is a simple, good test for smartness in the current climate: Who identified and coherently described the housing bubble in 2005 or before? I think everyone on your list fails the test.
  - davidw 18y ago
    After a quick search in The Economist's archives: http://www.economist.com/finance/displaystory.cfm?story_id=E1_QPRVNJP http://www.economist.com/finance/displaystory.cfm?story_id=E... > The technology bubble in the late 1990s at least left behind a modern capital stock, which continues to yield productivity gains; a property boom, in contrast, does nothing to boost long-term growth. Instead, it diverts resources away from more productive sectors and by fuelling consumer spending it exacerbates America's economic imbalances. Eventually, there will be a price to pay. Also, I'm not sure that predictions of problems equate to knowing what to do to best wind down the current mess. You're right (elsewhere) that some things need to go under. However, I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it. Of course I guess we'll really never know for certain in any case, as it's impossible to know what would have happened otherwise. We could have no bailout and massive failures just as we could have a bailout and still have massive failures. Or no massive failures in either case.
    - kingkongrevenge 18y ago
      > I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it. I've seen this movie before. If bailouts and stimulus packages worked Japan would have been the economic star of the 1990s and the Depression would have ended before FDR ran for the nomination.
      - davidw 18y ago
        Japan didn't do "bailouts", from what I've read. More along the lines of simply never facing up to the bad debts and letting some things fail. That certainly has to be part of it, and has been so far.
    - cubix 18y ago
      The Austrians were predicting it in '02: http://mises.org/story/986 http://mises.org/story/986 Raines may be in a dream business, but the net result of Fannie Mae’s actions in the credit markets is a nightmare of resource misallocation and massive systemic risk.
  - MaysonL 18y ago
    Warren Buffett in 2003. see http://news.ycombinator.com/item?id=304237 http://news.ycombinator.com/item?id=304237 Note that he's contributed $5 billion to the bailout of Goldman Sachs, in the form of convertible senior debt, at an interest rate of 10%.
    - byrneseyeview 18y ago
      Buffett bought callable preferred stock and warrants. Differences: preferred stock only pays a dividend when Goldman makes a profit. In a bankruptcy, preferred is ahead of common, but behind creditors. At any time, Goldman can pay Buffett a 10% premium to the issue price, and get the preferred back. If Buffett exercises his warrants, he will still own the preferred.

davidw 18y ago

"certain well connected individuals" Sounds like conspiracy theory territory to me, but maybe I'm misconstruing what you're saying. On the surface, your argument regarding 700 billion vs 40 trillion sounds plausible, but then again, it doesn't seem to be convincing guys like Larry Summers, Mark Thoma, or The Economist ( http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=12326538 http://www.economist.com/world/unitedstates/displayStory.cfm... ), and I don't think they're all in on the plot, yet are pretty smart. On the other hand, if things don't go to hell without the bailout, it will show that Paulson et al. were indeed quite wrong.

kingkongrevenge 18y ago
There is a simple, good test for smartness in the current climate: Who identified and coherently described the housing bubble in 2005 or before? I think everyone on your list fails the test.
- davidw 18y ago
  After a quick search in The Economist's archives: http://www.economist.com/finance/displaystory.cfm?story_id=E1_QPRVNJP http://www.economist.com/finance/displaystory.cfm?story_id=E... > The technology bubble in the late 1990s at least left behind a modern capital stock, which continues to yield productivity gains; a property boom, in contrast, does nothing to boost long-term growth. Instead, it diverts resources away from more productive sectors and by fuelling consumer spending it exacerbates America's economic imbalances. Eventually, there will be a price to pay. Also, I'm not sure that predictions of problems equate to knowing what to do to best wind down the current mess. You're right (elsewhere) that some things need to go under. However, I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it. Of course I guess we'll really never know for certain in any case, as it's impossible to know what would have happened otherwise. We could have no bailout and massive failures just as we could have a bailout and still have massive failures. Or no massive failures in either case.
  - kingkongrevenge 18y ago
    > I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it. I've seen this movie before. If bailouts and stimulus packages worked Japan would have been the economic star of the 1990s and the Depression would have ended before FDR ran for the nomination.
    - davidw 18y ago
      Japan didn't do "bailouts", from what I've read. More along the lines of simply never facing up to the bad debts and letting some things fail. That certainly has to be part of it, and has been so far.
  - cubix 18y ago
    The Austrians were predicting it in '02: http://mises.org/story/986 http://mises.org/story/986 Raines may be in a dream business, but the net result of Fannie Mae’s actions in the credit markets is a nightmare of resource misallocation and massive systemic risk.
- MaysonL 18y ago
  Warren Buffett in 2003. see http://news.ycombinator.com/item?id=304237 http://news.ycombinator.com/item?id=304237 Note that he's contributed $5 billion to the bailout of Goldman Sachs, in the form of convertible senior debt, at an interest rate of 10%.
  - byrneseyeview 18y ago
    Buffett bought callable preferred stock and warrants. Differences: preferred stock only pays a dividend when Goldman makes a profit. In a bankruptcy, preferred is ahead of common, but behind creditors. At any time, Goldman can pay Buffett a 10% premium to the issue price, and get the preferred back. If Buffett exercises his warrants, he will still own the preferred.