the daily column


The $700 billion bail-out of the US banks and their ‘toxic loans’ is not exactly universally acclaimed:

For years now, they’ve told us that we can’t afford—that the government providing healthcare to all people is just unimaginable; it can’t be done. We don’t have the money to rebuild our infrastructure. We don’t have the money to wipe out poverty. We can’t do it. But all of a sudden, yeah, we do have $700 billion for a bailout of Wall Street.


The idea—we didn’t cover insurance … for four million kids, because Bush vetoed it and said $7 billion was too much to spend [on] health insurance, for four million kids, but now they can throw $700 billion at these banks, and they say we can’t even have hearings about it.


The problem of ‘moral hazard’ is even greater with this proposed package than just a prop-up loan as given to Goldmans and Morgans, or the sharply targeted buyout of AIG ($85b loan at 11% p.a. for 80% control of a company with assets close to $1 trillion), . The idea that the government take responsibility for the worst of the excess just promises that this will happen again, in one form or another.

3 replies on “Priorities”

It’s much easier to justify spending money when faced with a “disaster” than just normal daily expenses.

Sure, the health and education is much more useful and money-well-spent, but hey, there’s no immediate do-it-or-die urgency, and hence can be put off.

This? This is a disaster. A financial tidal wave. It’s do-or-die time. So they “don’t have a choice” and hence must spend the cash. This is typical “disaster recovery” where everyone fear the unknown, panic, says “do something do something” and then spend far too much resources.

Washington’s been painting a doomsday prediction over this “crisis” and been saying “we don’t know how bad it will be”. How much of this “crisis” is hype I don’t know, but if you factor in enough unknown, you’ll have a high enough cost-benefit ratio to justify 700bil.

Next disaster? Washington running out of money.

Heh, just read your comment and now this and I’m not sure whether you’re pro or anti-bailout.

But, come on, this is Bush: “Fool me once, shame on — shame on you. Fool me — you can’t get fooled again.” I have more faith in the free market licking its wounds and recovering slowly than Bush rushing in with guns ablaze.

The contrast does not escape me – this was written before the current deal was hammered out.

I suppose I’m more pro-bailout-with-severe-conditions than anti-, and part of that is a simple bias (I work at an investment bank after all, albeit a European one). The argument of letting the free market lick its own wounds is very tempting, but the problem is the process is a slower one and a more painful one than is politically acceptable.

For the major financials to work out their own problems would require a government (or rather many governments) to say, “We’ll take a hit of recession to come out healthier on the other side.” The problem is last time something like this happened, we hit the funk of the Great Depression… and I can’t imagine anyone wanting to sit by the sidelines here.

I would’ve preferred whatever bailout to be a severe loan or a significant discount on the price of these so-called “toxic” mortgages, along with criminal proceedings against many who led the merry dance of fiscal gluttony.

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