kf stops the bleeding!

A mostly political Weblog.
Oct. 5 2008 7:10 AM

Kf Stops the Bleeding!

Plus: No time for Dems to unpanic.

(Continued from Page 12)

Some other points!--

1) Gingrich claims it's dangerous to push a dramatic long-term solution in response to a shorter-term "crisis." But of course he uses the crisis to push his own long-term solution, a "zero capital gains tax." I personally think we need to respond to this crisis by immediately providing universal health care while postponing indefinitely all plans for "comprehensive immigration reform" and "card check" unionization. Racial preferences in college admissions and contracting should to be suspended for 15 years while the government creates a $700 billion entity to fund charter schools and another of similar size to finance public works projects that provide unskilled, last-resort jobs. This no time to rush into untested schemes;

2) I don't have to imagine what a future administration might do with the unchecked power to spend $700 billion, potentially rewarding friends, etc. I'm worried what the current administration would do. Paulson seems like a straight shooter--but these are Bushes we are talking about. They value loyalty and keep lists. The President tried to put his personal lawyer on the Supreme Court. Enough said. ...

3) Gingrich worries about "a one-week solution that becomes a 20-year mess." I don't see the danger of a 20-year mess. It's only a trillion dollars. It won't take 20 years to spend.

4) Sebastian Mallaby and Paul Krugman both make plausible cases against the bailout. Unfortunately they seem to partially contradict each other.

Advertisement

Krugman (like Joe Nocera) wonders what price the government will pay for the toxic assets its buying--will it drive a hard bargain, paying no more than"fair value"-- in which case it wouldn't seem to be doing much to help the firms it's buying from. Or will it overpay, in effect lavishing a taxpayer windfall on Wall Street screw-ups without asking anything in return? The scheme only makes sense, Krugman notes, if

this is mainly a liquidity problem. So if the government stands ready to buy securities at "fair value", all will be well.

Mallaby, on the other hand, worries that there is no market price--no "fair value"--at all, and no way of knowing whether the government will have overpaid:

But under the current proposal, the government would go out and shop for bad loans. These come in all shapes and sizes, so the government would have to judge what type of loans it wants. They are illiquid, so it's hard to know how to value them. Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. 

In other words, as I understand it, Mallaby says there is too a big liquidity problem, which is precisely what (as Krugman notes) Paulson's bailout is designed to fix--by pricing the toxic assets via a "reverse auction," in which the government pays the lowest possible price, and in effect answers the question "private sector experts" can't.

I don't know if it will work (and I don't see why, to make it work, the government needs to spend all $700 billion). But I don't think both Krugman and Mallaby can be right about why it won't work.

TODAY IN SLATE

The Slatest

Ben Bradlee Dead at 93

The legendary Washington Post editor presided over the paper’s Watergate coverage.

This Scene From All The President’s Men Captures Ben Bradlee’s Genius

Renée Zellweger’s New Face Is Too Real

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Whole Foods Is Desperate for Customers to Feel Warm and Fuzzy Again

The XX Factor

I’m 25. I Have $250.03.

My doctors want me to freeze my eggs.

The XX Factor
Oct. 20 2014 6:17 PM I’m 25. I Have $250.03. My doctors want me to freeze my eggs.
Technocracy

Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

George Tiller’s Murderer Threatens Another Abortion Provider, Claims Free Speech

The Congressional Republican Digging Through Scientists’ Grant Proposals

  News & Politics
The World
Oct. 21 2014 3:13 PM Why Countries Make Human Rights Pledges They Have No Intention of Honoring
  Business
Moneybox
Oct. 21 2014 5:57 PM Soda and Fries Have Lost Their Charm for Both Consumers and Investors
  Life
The Vault
Oct. 21 2014 2:23 PM A Data-Packed Map of American Immigration in 1903
  Double X
The XX Factor
Oct. 21 2014 3:03 PM Renée Zellweger’s New Face Is Too Real
  Slate Plus
Behind the Scenes
Oct. 21 2014 1:02 PM Where Are Slate Plus Members From? This Weird Cartogram Explains. A weird-looking cartogram of Slate Plus memberships by state.
  Arts
Brow Beat
Oct. 21 2014 9:42 PM The All The President’s Men Scene That Perfectly Captured Ben Bradlee’s Genius
  Technology
Technology
Oct. 21 2014 5:38 PM Justified Paranoia Citizenfour offers a look into the mind of Edward Snowden.
  Health & Science
Climate Desk
Oct. 21 2014 11:53 AM Taking Research for Granted Texas Republican Lamar Smith continues his crusade against independence in science.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.