Monday, September 22, 2008

Stay thoughts on the financial crisis

1. I liked the way Paulson handled AIG -- simply taking over a profitable company with the eventual surplus probably going to taxpayers. I liked the way Paulson handled BSC, though I think he could have been better on the backstop, particularly after JPM increased the share price from two to ten: if JPM wanted to pay more, it should have given that money to the government and not the shareholders. I was shocked by the way he handled LEH, but I still can't figure out why LEH's debt was marked at close to zero by the money market funds. I also like the way that Sweden handled its financial crisis -- taking over the banks and then selling them back a few years later for a profit. But there is a big gap between Paulson's deft handling of AIG and his new bailout plan -- it is as though dealing with AIG and LEH left Paulson shell-shocked, and now he is trying to convince people that feverish sleep-deprived plans are the perfect solution.

2. One of the reasons that Paulson carries so much weight is, of course, the invisible alpha-juice that is the result of centimillion dollar pay packages. As an organism, he is not particularly impressive -- however as an alpha, he can sure swing it around.

3. The whole crisis is not an argument against free markets, and it is not an argument for more regulation: it is proof that a hybrid economy with both regulation and free markets creates incentives to game the system. Witness, for example, GS and MS becoming bank holding companies, in order to crowd less clever people away from Paulson's giveaway trough.

4. The ultimate political fallout of this mess should restore popular American support for the estate tax. It is one thing for Paulson and a clique of thieves and schemers to get their invisible alpha-juice, but it is quite another to pass that juice down for twelve generations.

5. It's funny that everyone says that "taxpayers" are going to be handed the bailout bill. Does anybody other than those people holding ten trillion dollars of bonds really believe that we won't just inflate our way out of this mess?

6. This the first financial crisis when many of the bloviating heads are younger than I am.

7. It's a shame that McCain didn't win in 2000 and a double shame that he has early-onset Alzheimer's now. It is hard to imagine all this having happened during a McCain administration, and it would be almost sweet to watch him, slightly addled, in the sunset months of his Presidency -- rather than sweating through terrifying projections of his disintegration over the next eight years.

UPDATE: Is it really possible that Congress is going to substantially modify the plan?


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