Sunday, March 22, 2009

Maybe John McCain actually won after all

Paul Krugman maintains that the Obama administration essentially believes that the fundamentals of our economy are strong by launching a $1 trillion plan to buy toxic assets by offering low-interest loans. The Nobel Prize-winning economist begrudges the Treasury its plan and puts it in perspective:
In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.
You ready to risk some more of your money while the wealthy financial firms rake in the benefits?

UPDATE: And, as if getting no-risk, positive yield government assistance were not enough, financial industry executives are now threatening to demand guarantees that their compensation will be limitless and that they will be free from government regulation in exchange for going along. Honestly. Of all the arrogant postures to take. Who do these people think they are that they are entitled not just to government support, but to government support on their terms?

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