A Round-Up of Commentary on the Bailout
posted by Dave Hoffman
Zaring: The State of Play (is this lawful?) and The Bailout Statute (so few words, so much money).
Ribstein: Some thoughts about SOX II (watch out for the follow-on regulations!)
Quiggin: Moral hazard, meet adverse selection (it’s worse than you thought)
Levitt: Diamond and Kashyap on the Recent Financial Upheavals (the conventional wisdom, right down the line)
Lipshaw: Complexity and Disclosure Regulation (complexity as a cause, regulation as a solution?)
Krugman: No deal (no details, no trust)
Marshall: Before we jump in (where are the WMD’s?)
Kling: Morning Thoughts (too good to summarize, go read it)
Smith: Why you should hate the treasury bailout (“The Treasury program, by quite deliberately propping up asset prices, will delay finding a market clearing level and thus attenuate the financial crisis.”)
Perhaps I’m looking in the wrong corners of the blogosphere, but it looks like the blog-CW has turned decisively against the plan. (But see this collection of economists). Why? Two basic reasons: (1)a lack of trust in the administration’s competence and motives; and (2) the fact that if the Newer Deal is to work, we’ll need to overpay for the assets, meaning that the eventual cost of the bailout will exceed our capacity. Further, some liberals, who might ordinarily be supporting an expansion in federal regulatory power, are dubious because this kind of outlay will starve Obama’s potential administration of funding for progressive government.
Still, we’re likely to get something akin to this plan passing within the next seven days, since politicians are risk averse, and the immediate impact of not passing a plan would be more turmoil, thus adding variability and complexity to the political markets. Politicians would rather quiet both markets now, since the long-term effects (someone mentioned us looking like Thailand) won’t be felt till after November 4. Plus, there is a problem of comparative expertise and informational asymmetry. Congress can’t effectively evaluate Paulson’s claims that the sky will fall in the absence of this plan, because they lack the data and the financial situation sense. Thus they are left agreeing to the plan, but trying to add consumer-friendly ornaments to it.
(Image Source, The excitement before the bubble burst, Wikicommons)