Although I’m not in agreement with the at least implicit partisanship of the post nor would I limit the exhortation to Sen. Obama alone, I think there’s a good point being made in this post (hat tip: Glenn Reynolds). If any politicians, economists, or anybody else for that matter knows what to do about the financial mess now in full swing, he or she could come forward and present the specifics of the plan rather than hurling brickbats at those with whom they disagree. Unfortunately, I think the sad reality is that nobody and I do mean nobody knows what to do.
If we’re going to leave it to the experts, the experts in this case being Ben Bernanke and Henry Paulson, we should shut up and let them do their work. If we’re not content to leave it to the experts, let’s limit our comments to concrete, positive proposals. Raking up old scores, general criticisms about philosophy, particularly when the connection between actual events and the purported underlying philosophy aren’t particularly clear, and overall partisan boosterism are unhelpful.
Meanwhile, the experts are preparing a massive intervention and the SEC has put a temporary halt on short selling:
The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.
Congressional leaders gave bipartisan support to the administration’s efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke.
Paulson and Bernanke presented a “chilling” picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.
The plan involves using hundreds of billions of dollars in government funding to buy bad loans, leaving banks with more money and fewer problems, according to two sources familiar with what was said at the meeting.
As I noted yesterday, I think that there are some very worthwhile questions about who, precisely, is being bailed out, e.g. bondholders, shareholders, taxpayers; why the financial crisis has been slow to translate into the general economy; and, if the financial crisis doesn’t translate into the general economy, why the government should act at all. But I think these questions should be answered with facts and reason rather than emotion and vitriol.
“The plan involves using hundreds of billions of dollars in government funding to buy bad loans,”
I think this brings us a step closer to who is being bailed out. We need more definition of a “bad loan.” Bad home mortgages or the instruments that build on them? I assume we are talking about loans during a fixed period as well.
If the government is insuring subprime loans during say the period of 2006-2008, then we have the opposite situation as the S&L crisis. In the S&L crisis, Mr. and Mrs. Smith were facing lost savings until the government stepped in and guaranteed their payment and then the government created Resolution Trust to liquidate the S&L assets, which were primarily commercial loans. Here, Mr. and Mrs. Smith owe money and its the commercial interests that are caught short. Wouldn’t a Resolution Trust have to go put the squeeze on Mr. and Mrs. Smith? Is that politically or economically feasible?