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Old 04-07-2009, 12:42 AM
graz graz is offline
Join Date: Mar 2007
Posts: 3,162
Default Re: Financial Pneumonia (Mark Thoma & Scott Sumner)

Originally Posted by Gravy View Post
It is ridiculous to assume that it is impossible to know which cars on the lots aren't in working order. This is a myth spread by banks and bond investors. These assets are very well defined, but they are complex. But their complexity is no higher today than it was when they were created and then purchased. The current owners of these assets know perfectly well how they are performing and have all the necessary macro data to give rational ranges on their future expected performance. But they are holding out with the hope (expectation?) that the Obama plan - let's stop kidding ourselves that Sec. Geithner calls the shots, please - will come along to recapitalize them by the magic of overpaying. So it is incredibly convenient for them to encourage the view that a real market cannot develop since the assets are too hard to understand, since selling it for what they are worth is anathema to them. Hence the need for the government (you and me, by the way) to come in with the "deep pockets" and different "risk profiles". In otherwords, we will be dumb enough to protect Obama's peeps in the banking and bond communties.
It seems we will be paying either way. If we don't overpay with the largesse to the banks and bond holders, with the goal of increasing liquidity... then we have to face that they are insolvent, which will require Nationalization and fire sale on the fragments. Is there a definitive case for the second way to be more cost effective or less painful to the taxpayers?

Last edited by graz; 04-07-2009 at 12:50 AM..
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