Clear explanation of the next phase of the bailout

by philg

In a rare example of clear understandable prose from an economist, Joseph Stiglitz wrote an editorial yesterday for the New York Times explaining how the next $500+ billion of taxpayer funds are to be handed over to Wall Street. The folks who are going to pay for this are in high school right now and there is nothing that they can do about it, but it is worth seeing that the supposed hypercomplexity of Wall Street is not always beyond the comprehension of a layperson.

The article made me wonder why, if government action is required (and there are those who say that the Audacity of Doing Nothing would be better), we need to accept cronyism. For example, if the government thinks that mortgage-backed securities aren’t worth as much as they should be (“when people get an answer that they don’t like from a market, they cry ‘market failure!'”), the government could go into the market with $50 billion every day and offer to buy mortgage-backed securities from any willing seller, taking home the securities offered at what seemed like the best price. With that kind of buying, eventually the prices would come up and banks would have unloaded a lot of mortgage-backed securities.

2 thoughts on “Clear explanation of the next phase of the bailout”

  2. I think something along these lines is happening:

    http://www.nytimes.com/2009/03/04/business/04penny.html

    What I want to know is how much the government is paying for the mortgages, if anything. If the government is buying debt or instruments that have no value, so the market for them didn’t exist, how much are we paying?

    But I think this is the “right” way to do it. We don’t want the government to be in the business of being a debt collector. Acquiring these mortgages when the banks fail and then selling them to Mr. Kurland could help ease the pain of the bailout. As long as we are not getting taken advantage of.

    Oh, and the fact that Countrywide made a ton of mortgages that were obviously a bad idea, and the guy who ran Countrywide is now making a ton of money off these bad mortgages, blows my mind.

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