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The author at Club for Growth in a related article titled Betting on the Bailout writes:
COMMENTS (25 to date)
Arnold Kling writes:
I actually think of the payoff of a well-considered investment in mortgage securities as follows: probability of a small gain: 90 percent So I think that Bryan will probably lose his bet, even though I as an individual would not be buying mortgage securities today. Government incompetence and adverse selection will reduce the chance that the bailout makes a "well-considered investment," so that helps Bryan's chances. Posted October 7, 2008 1:51 PM
El Presidente writes:
Rock, paper, scissors? :-) Posted October 7, 2008 1:57 PM
Michael K writes:
I'll take your bet! I agree with Kling that it's most likely to make a little money. Posted October 7, 2008 3:32 PM
Thomas Dinsmore writes:
I'm offering insurance to anyone who wants to hedge Bryan's bet. Posted October 7, 2008 3:36 PM
Ryan writes:
The bailout was the wrong thing to pass. It's time to do something right. Please support this proposal and get your Congressional representative to sponsor this solution to our current monetary crisis. A complete list from the Detailed Executive Summaries of the National Economic Stabilization and Recovery Act:
# Eliminates more than $1 trillion of the nation’s public debt # Workers maintain better control of their earnings
# The Federal Reserve Act of 1913 is amended
# People are provided with several alternatives for currency
# Returns the banking industry to serving public interests
# The Income Tax Act of 1939 is amended
# Tax rate of 14% Posted October 7, 2008 3:42 PM
Felix writes:
Even section 134 seems a bit sketchy as a bet resolver. I foresee more than a little campaign financing coming from those who want not to be in the "financial industry" a short while after the next 4-year election cycle. Simple laws are wonderful. Note how inflation is not mentioned in section 134. In fact, 134 is an empty clause. Congress can take what it wants from the "financial industry" at any time, whether congress has passed a law saying it can do so or not. Posted October 7, 2008 3:54 PM
Adam writes:
Warren Buffett stated last week on Charlie Rose that he would take the opposite side of your bet. Unfortunately I don't know him but I imagine he would make an interesting counterparty. Posted October 7, 2008 4:04 PM
English Professor writes:
Bryan, how can you trust a government report for the truth or falsity of a statement about whether TARP ended up gaining or losing money? Doesn't Public Choice theory warn you off? Won't this be a political determination rather than an economic one? Who will gain from what is decided and how will those persons (or that political party) gain? I certainly wouldn't put any of my money at risk on such a decision. Second, here's an example of how the government does its accounting. Social Security receipts that are in excess of immediate payouts go into the general fund of government revenues, right? The SSA is then issued bonds, which consist of a series of claims on future tax revenues. These bonds are then called a "trust fund." So a government trust fund consists of a promise to transfer money from future income tax revenues to Social Security recipients. But these transfers will NOT be treated as the transfer payments that they are; they will be segregated under the heading of debt repayment (or interest on the debt). And you're willing to allow these people to determine whether or not you owe someone else money? Posted October 7, 2008 4:50 PM
Chris Wuestefeld writes:
The "5-year period" of this reconciliation is the red flag for me. Putting it off beyond the next Presidential election suggests that they have little expectation of positive news. If they were confident of this, they'd want to be able to take credit. Delaying the accounting reveals that they don't expect credit, but blame -- safely before the next Presidential cycle, and even a year before any national elections. Posted October 7, 2008 5:00 PM
Tushar writes:
Bryan My $0.02 Posted October 7, 2008 5:22 PM
Steve Roth writes:
You don't seem to be getting many takers. If you need another patsy, count me in for $100. I put the chance of recoupment on your terms at even odds, so in economist's terms the cost to me of this bet is zero! If you win, you and I will just have to hope that I'll actually have $100 left five years from now. Cause you might really need the money... Posted October 7, 2008 5:23 PM
Giles writes:
Not a fair bet. How about this one. If the bailout looses an even number (in millions of dollars) I win, odds you win. The loser pays the winner 1 can of Tennant's Extra for million lost. After all its only fair that the winner should be saddled with a shed load of toxic p*ss as well. Posted October 7, 2008 6:19 PM
guy in the veal calf office writes:
But how will you calculate the monumental, super-awesome benefits of Sec 111 of thw bill that requires: limits on compensation that exclude incentives for senior executive officers of a financial institution to take unnecessary and excessive risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt position in the financial institution;? Posted October 7, 2008 7:25 PM
Scott Wood writes:
"...recoup from the financial industry...." How do they propose to do that? A special levy? Posted October 7, 2008 8:48 PM
Methinks writes:
If we accept Dr. Kling's probabilities, and we assume that the OMB is honest in its reporting, Bryan's expectancy depends on the definition of "small gain" & "enormous loss" if "small gain" = 5 Billion then, the expected P&L of this ill conceived hedge fund is a loss of 5.5 Billion. Bryan wins. Even if, in the unlikely event the TARP makes a profit, will it really result in a gain? It depends on how we define "gain". If the government fritters away the profit on various government programs (as is its wont, is that really a "gain"? Will the average taxpayer consider that a "gain"? I think not. Personally, I don't agree with Dr. Kling's probabilities. I think there's at least a 50% chance of a substantial loss and a 50% chance of a minute gain. I just don't see the incentive to enter into positive expectancy trades on the part of the TARP. However, there's huge incentive for cronyism and corruption. After all, what are the "investors" in this, the largest distressed debt hedge fund, going to do if they're unhappy? Withdrawing from the fund is not an option. Posted October 8, 2008 12:22 AM
dcpi writes:
What does it matter whether the bailout achieves a "paper" profit on its MBS investments? Any money it does earn will be spent on new Federal programs and not returned to the tax payers. I am willing to bet $1,000 that there will be no tax rebate or deficit reduction associated with the program. The pols will do something silly like forgive student loans or something else with any "profits" instead. Or perhaps they will create some entirely new, unending and costly program. Oh, and it does not matter which party is in charge when they book the profit. Posted October 8, 2008 9:03 AM
Troy Camplin, Ph.D. writes:
Certainly after McCain suggested that we buy up mortgages and then renegotiate them at the new value of the home, there is no doubt we will lose money on this. Do I get to renegotiate the price I paid for gas this week when the price drops the next week? Posted October 8, 2008 9:12 AM
macquechoux writes:
Professor, you should get in touch with Warren Buffett as he is dead certain that the government is going to make money on the bailout. Spend a few minutes and check out why he would/should take your bet: http://www.charlierose.com/shows/2008/10/1/1/an-exclusive-conversation-with-warren-buffett Let your faithful readers know if he takes you up. Posted October 8, 2008 9:43 AM
MattYoung writes:
Considering the stock market continuing decline after the bailout passage, I think you have already won your bet! Posted October 8, 2008 10:14 AM
Prakhar Goel writes:
"OMB may be able to overstate the bailout's success, but there are limits to spin doctoring." No... there really aren't. Posted October 8, 2008 10:32 AM
bill shoe writes:
Bryan, Congratulations on putting your money where your mouth is. I also have a nitpick with the government deciding if there's a shortfall in the account. I think the Fed/Paulson are already gearing up to "rework" the mortgages so fewer people lose their homes. This obviously requires some kind of initial loss on the mortgages relative to their current market value. However, government accounting might consider this loss to still be in the account as some kind of "value added" to the taxpayers, or congress might add $x billion into the fund to cover the cost of mortgage reworks and presto!, no loss in the account! Again, I admire your willingness to bet on such generous terms, and maybe if you get financially screwed by government accounting chicanery then you'll have made your point as a moral victory. Posted October 8, 2008 3:37 PM
Methinks writes:
I think the Fed/Paulson are already gearing up to "rework" the mortgages so fewer people lose their homes. You mean "so that fewer people get kicked out of taxpayer provided homes", don't you? One must repay the lien against the asset in full to own the asset. If these people truly owned the homes, they wouldn't have a mortgage in the first place. These are not home owners. Posted October 8, 2008 4:51 PM
John Fast writes:
Arnold Kling wrote: probability of a small gain: 90 percent Okay, Arnold, will you cover Bryan's $500 and my $500 as well? (Although betting against you on something involving mortgage-based securities would seem to be a fool's wager.) Also, would you be willing to make a counter-bet where the payoff is based on the total (reported) loss? Bryan: Do you think that, five years from now, there's a publishable paper tracking the government's official accounting of the real cost and/or payoff of the bailout, and pointing out how they're cheating/lying? Posted October 8, 2008 8:18 PM
Rick Stewart writes:
I will take the bet exactly as written. I will write my check for $100 to Arnold, to be held for disbursement to the winning party. I believe I will lose, of course, but it's only $100. And I believe it is highly unlikely any of us will be paying attention to this in 5 years, myself included, so what I am really buying is my own attention span. I fit none of the categories that would give me a preference for Bryan's acceptance, but I do offer this enticement. If I win, I will eat Bryan's check. Posted October 9, 2008 12:43 AM
Bryan Caplan writes:
John Fast wrote:Probably, though it's more of a policy paper than an academic article. Posted October 9, 2008 12:43 AM
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