Sunday, September 07, 2008

Bailout is a zero-sum context (at best)

The Billionaire Bankers' Bailout is official.

The APs Alan Zibel reports:

The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae (FNM) and Freddie Mac. (FRE)


The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Here's the problem though as I see it... we're operating in a zero-sum context at best. Either we take the pain now or we take it later (when I suspect it will be worse). The gamble here is that we'll somehow be able to avoid or mitigate the pain later. But I don't subscribe to the Bush/Paulson/Bernanke economic theory in which Paulson seems to argue that we cannot / should not reduce the ability of Americans to get credit.

Rather, I believe that delaying the pain will only worsen its impact when the day comes that it can no longer be avoided.

On this count, I probably fall more into line with the Alan Greenspan school of thought:The easy credit that's been dished out for years has got to stop.

If it doesn't stop now, it will stop later. And that's when America really will feel the pain... when the US Dollar has little buying power for foreign goods, such as oil.

Tim White


Anonymous said...

Greenspan was nothing more than a pimp for George Bush. How many times did he say there was no housing bubble? What people will do to keep their jobs.

Anonymous said...

If Greenspan was a pimp for Bush, what role does Dodd have for Fannie Mae?