Bailing Out

September 25, 2008

The talk in Congress about the financial mess is very interesting in the way it obscures some basic ideas.  People act as though this is strictly a practical matter, a non-partisan, non-political, time-to-stop-arguing, let’s fix it now! question of simple financial mechanics.  In other words, there’s no ideology, no politics involved – just not relevant.

Well, a few criticisms of the plan that I’ve heard, particularly the comments of a former Secretary of the Treasury and one excellent letter to the NYTimes today, make me think otherwise.  The basic question is this:  If the problem was brought on by speculating in sub-prime mortgages, why not prop up those mortgages?  Pour money into the bottom, not the top.  Subsidize Main Street, not Wall Street?  If we bail out financial service firms, and home prices continue to drop, the USA, that’s us, will be left holding the empty bag. 

Could it be that it is more efficient to pour money in the top, to stabilize the markets, to restore confidence, to unfreeze the credit realm, and thus benefit all Americans by making the economy function again.  Could it be that time is of the essence? 

Or could it be that guaranteeing mortgages would also send a salutary shock into the system that would achieve the same thing, but it offends so many, especially Paulson and GWB, because it is bypasses Wall Street?

One person said that bailing out Wall Street this way by pouring in money is like filling a leaky bucket.  The bad mortgages are what’s draining the bucket.

Meanwhile, check out this wonderful animated tour of the Subprime Mortgage Mess.