Bail

The case against the bailout (or a case):

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

I suppose the upside of all this is that at least the presidential election is starting to focus on things that matter. Of course it doesn’t help that both candidates agree on the same mid-bellcurve policies of failure. Oh well — maybe next time. Political failure is one thing, but financial failure is another. The folks at Loans.no forbrukslån, a Norwegian personal finance company, and www.toploancompanies.com say that personal finance is a touchy subject, almost as touchy as political beliefs.

And I wasn’t going to do any more political rants.

bkd

4 comments

  • HJ

    Obama is pals with all the Fannie and Freddie people, so he can’t take a substantive stand. It’s a softball McCain could hit out of the park, but for some reason, he chooses not to.

  • telkontar

    If his assumptions are correct, he is partly correct. What is the value of the assets? He says near zero. Buffet says probably worth more than FMV if held to maturity. Who is correct? Hard to tell. If the government comes out ahead (which it could, except the government is not efficient or well-run), then taxpayers should want a buyout (except that a democratic congress would spend all the profits).

    He ignores that some firms have been purchased for FMV, so some valuations have been done and some risk is being accepted. However, valuing the entire mess is not gonna happen in the next month.

    Should we avoid the moral hazard and let the dead wood die by allowing bankruptcies? Yes. Should the government do nothing while credit markets shrivel? Probably not. His bankruptcy analysis is accurate, but simplistic. There is more involved and much more collateral damage than simply changing names on a stock certificate.

    His statement:
    If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

    Aye, there’s the rub. Who knows the correct value? Large firms are already suffering on the balance sheets and have bought additional risky assets. There is a limited appetite for risk and the market (so called) is (as usual) overreacting to the negative news. However, psychologically, there is a limit to the amount of risk a person, an enterprise, or a nation can assume at one time. Still, pushing today’s cleaning bill on a future generation is not fair.

    Also, there are plenty of impacts on the commonwealth from allowing too many to fail. Japan had basically the same problem 20 years ago. Its economy is barely beginning to revive. I’d prefer not to live through that.

    My solution? Let a few more fail, then intervene on a lesser scale. Easy to say; difficult to pass through Congress.

    Congress will act. Will the long-term ramifications be positive or negative? More negative (public debt and interventionist government). Alas.

  • bkdunn

    HJ, yeah, can’t you Arizonans control your boy? It’s amazing to have Yet Another Election where both candidates claim to have the exact same positions on pretty much all the actual issues. Some choice we’re getting.

  • bkdunn

    Telk, I like your version *better*. I just think that by letting nature run its course, situations will be forced to adapt for the better. I mean, if California can’t secure loans to pay its bloated budget, then maybe California takes emergency action to slash that ridiculous budget. (And people think *I’m* not optimistic.)

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