Morning Commentary

Thank you for the links.

The Russ Roberts article (and especially the passage you extracted) seem exactly on point. (I owe Dr. Roberts a kudo or two, as I was rather critical of him on a previous post).

What baffles me is the initial and on-going references to the '29-'41 depression. Other than current government/Fed actions that are "without rhyme or reason", there are almost no similarities to that period. In the depression era, an over-leveraged stock market crash precipitated a recession, and subsequent ill-advised consumer/bank/government actions precipitated a recession into a depression - as Dr. Roberts describes.

In the current case, an over-leveraged housing market precipitated a credit market 'clog'. But housing has an intrinsic value that the 1929 stock market components didn't. That at least implies that home prices, while deflating/deflationary, will not go to zero value as 1929 stocks did. And at least some of the banking protections put in place after the depression era are/were intact at the beginnings of this mess. Not to mention the fact that it has taken until the 3rd quarter of 2008 for the economy to show a (trivial) negative growth, when the housing 'bubble' burst was in late 2006.

It's as if the elected representatives and the Fed are feeding a basically healthy patient massive doses of digitalis in the hopes of staving off a mis-diagnosed massive heart attack. Such remedies cause heart attacks.

"I am still waiting for profiles of borrowers that make me think they deserve a bailout."

Is such a profile possible?

I am renting, not because Bad Things happened, but because when I asked for a mortgage that didn't provide massive risk later down the line... nobody would give me one. Rather than accept the risk, I chose to wait until the market corrected itself. We're probably another year or two away from that.

But didn't everyone who chose not to wait voluntarily accept that risk? Having accepted it, don't they "deserve" what they got? They knew it could happen, they decided to risk it, and it happened. It was a voluntary gamble, wasn't it, just like plopping your whole paycheck onto the roulette table? No matter how stupid it was, isn't it the entire point of American self-reliance that the consequences of stupid actions are yours to accept and resolve?

If there were no systemic effects, then no one should get a bailout because of what Caliban well states in his comment. But if we have to bail some people/companies out to repair systemic failures, then we have a problem. The people/companies that provide the most leverage in repairing the system are not the most "deserving." So do we then bail out people who "deserve" it more also, as a measure of fairness, even though this provides no systemic benefit and just makes the bailout more fiscally irresponsible?

What are the key goals and in what proportions? Fixing the system, being fair, minimizing future moral hazard, and/or fiscal responsibility?

That at least implies that home prices, while deflating/deflationary, will not go to zero value as 1929 stocks did. And at least some of the banking protections put in place after the depression era are/were intact at the beginnings of this mess.