Monday, September 22, 2008

Let It Prang?

I haven't written about it -- do I look like an economist? -- but it appears Dear Old Uncle Sam will be bailin' out failing banks and home lenders, and while the two major parties are squabbling over the details, neither has breathed so much as a hint that Uncle ought not be doing this with your money. Or, more precisely, with a really fat bad check they hope to cover with what they get from your grandchildren.

Yeah, bad debt in the private sector is gonna get "fixed"by even badder public debt, which is somehow more okay, possibly 'cos the Feds have something the banks and similar institutions lack: troops.

There will be a reckoning. There will be a reckoning: water runs downhill and no amount of fervent hope will prevent it. "Do it to the g'grandkids," we breathe, as earnestly as Winston Smith cried, "Do it to Julia," and the only difference is that we hope we're buying time for them to come up with some real solution in the meantime.

Good luck with that. "Economic readjustment" can be put off but eventually it goes smash. The longer resolution is deferred, the harder it will hit. Do I want it to happen right now, with a gen-u-ine Old School Pinko running on the Democrat side and a "moderate" Republican up against him? Oh, hells no! That's a recipe for a Socialist Welfare State to happen right here, to the cheering of crowds. I'd like it to not happen 'til I'm safely off this planet, neither wrenching crash nor "People's" Revolution.

...But don't put money on being able to duck bad times forever. Home lending was already highly regulated, poked-at by do-gooders with Federal authority to "widen home ownership," which they did by coming up with ever-goofier loans to ever worse-risk home buyers. Those bad loans to people unable, unlikely and/or unwilling to pay have not magically gone away; they are still there, the crumbling sand not really stabilized by any Federal bail-outs a level or two up. People who could not afford to buy homes, bought them. (Or sort of bought them -- dodges like "interest-only loans" mean never really owning the place). This helped push prices up for everyone, at a rate faster than the growth rate of the economy.

Pop! --If you bought your house as an investment, surprise! ("Peak housing?" Heheheh). Yeah, who wants that? Not me! --But remember, no bubble lasts forever.

Hooray, the Federal government is stickin' a new and bigger piece of well-chewed gum over the leak in the dam! Short-term, it works and I am just as happy as you to not see a Depression -- or the Big Fine War they'll prolly drum up to claw out of it. But long-term? Meddling in markets, making them other than free, can only make things worse. The storm is brewing. There is no magic way out.


Turk Turon said...

Yesterday morning at 3:15 I drove past the Bureau of Engraving and Printing on 14th Street.

The lights were on.


Anonymous said...

The only ray of sunshine, the sole silver lining I can see in all of this is that maybe -- just maybe -- the American people will experience such a butt hurt from all this socialism goin' on out dere that they will firmly, finally, and permanently reject statism as the failed nostrum it is.

Then I go: "Nah!" and put down the bong.


Anonymous said...

Have to say "plague on all their houses" (cute!).

One thing to note is that our total exposure most likely isn't as bad as it's painted. While all that subprime paper isn't worth face value, it probably isn't worth zero, either. (Thank you post-Enron accounting standards: Yes, mark-to-market is more accurate than original-cost. But... what do you do if the market freezes and there are no buyers at any price? Price it at zero? Can you say "positive feedback loop?" Oh, you didn't think about that!)

If the gummint buys this stuff at pennies on the dollar, there is a good possibility that it will wind up making money on at least some of it. (Though when it's all over we're more likely to see a RTC-equivalent cost of around $150 billion... or half the cost of the 2008 farm bill, which is another argument.)

Saturday's Wall Street Journal had a good recap of previous government bailouts, going back to 1792. It's good to be reminded that our "free markets" have never been as "free" as we'd like to believe them to be.

Heard in discussion on the radio this weekend: "If a business is 'too big to fail,' doesn't that mean it's 'too big, period'?" Interesting thought.