DeLong for the Defense

Brad DeLong mounts what to me looks like the first defense of the Geithner plan for revitalizing the financial sector that’s been forthcoming from anybody. The post consists of short questions and answers and is unexcerptable. Read the whole thing. It’s not very long.

I do have one question of my own, though. One of the questions that Dr. DeLong answers is:

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn’t make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

That sounds like a rather hysterical response to me. Is there something special about the “toxic assets”, different from, say, tulip bulbs during the mania of the 17th century or pets.com stock at the end of the last century? That’s a sincere question. I’d really like to know the answer.

1 comment… add one
  • Tom Strong Link

    I particularly enjoyed the first response by commenter Blissex:

    “The basic logic of this demented plan is that it is always a good idea to buy distressed assets, because they always go up :-).”

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