Arnold Kling  

Good Question

Friend or Foe?... Hunger in Maus...

Anil Kashyap and Jeremy Stein ask whether the purpose of the Paulson plan is to buy good assets cheap or buy bad assets dear. When a strong leader offers a solution to a crisis, you're not supposed to ask those kinds of questions.

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COMMENTS (6 to date)
E. Barandiaran writes:

You are too hysterical. Your cheap talk on leadership follows your nonsense proposal for reducing marginal capital requirements.

Gary Rogers writes:

I am also curious about whether they are buying the underlying mortgages that are packaged up in debt instruments or are they buying the income streams that have no market value and are causing so much problem for the financial institutions?

Methinks writes:

Well, if you're a well paid banker selling to a government employee responsible for buying these assets, which would you sell him?

Methinks writes:

Just mentioned in the hearing....the plan calls for the seller, not the buyer to price the asset.

Tom Grey writes:

It's a terrible plan. The US gov't buying foreclosed properties, on the cheap (max 20% in any county market) would be more likely to get good assets.

This plan is a way to reward incompetent rich elite bankers.

Instead, their prior bonuses for the last 5 years should be clawed back in retrospective windfall incompetence taxes.

Walt French writes:

Just saying...

What if the problem is that the securitized mortgages have unknown values, as Dr. Bernanke told us this morning, not because of illiquid markets, but because of their compositions?

Huh? You mean that you might model mortgages based on default rates and pre-pays, but that with the housing market so completely out of control, no amount of fiddling with the derivative market is going to introduce stability back on the underlying?

Yeah. Real disposable income hasn't been enough in a couple of years and continues to weaken; property values are essentially in free-fall; lending, if you can find it, extremely uncertain vis-a-vis future inflation. How're you going to figure out those exquisite, 7-decimal place multi-tranche valuations? And if you DO gratify yourself with a number anywhere less than 80 cents on a dollar of loans, how is that going to help a bank originate a new loan at a price a borrower will take a chance on?

Even if Paulson sets up this entertaining show of having actors exchange (lots of!) *real* money for *real!* MBS notes at prices that pretend there's no default or interest rate risk? Gee, that sure *looks like* those great "free markets" I hear so much about! Where do I put my $700,000,000,000?

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