Re: Financial Pneumonia (Mark Thoma & Scott Sumner)
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.