Intervention
Donald Luskin has an interesting post up regarding the current proposal from the Treasury:
To arrive at a principled view on this intervention, we must answer three critical questions: Is it necessary? Will it work? And even then, is it morally justifiable?
Unfortunately, we are thwarted at the outset. There’s simply no objective way to know whether the banking system is as close to disaster as top officials at the Treasury and Federal Reserve claim. They themselves don’t really know. This is a “banking crisis,” they say. But then again, other politicians claim there is a “health care crisis,” an “immigration crisis,” an “energy crisis,” and so on.
There’s no doubt that there is serious turmoil in the banking system and financial markets. But that doesn’t mean the proposed extraordinary intervention by the government in private markets is justified, considering that throughout history we have periodically gone through convulsions worse than today’s and survived them without such interventions.
As always, read the whole thing.
The more I learn about the proposal, the less I like it, so I guess I'm with QG on this one. Some sort of government involvement is probably inevitable, but since it was largely government involvement that created this mess in the first place, I would like it to be less rather than more and if more, it should be phased in so that there's time to study the effects.
2 Comments:
Why would you want time to study the effects? No one's going to study no steenkin' effects-at least not anybody in power.
Former Treas. Sec'y Paul O'Neil -- whose name I cannot see without mentally hearing it chanted by the Yankee Stadium bleacher creatures -- was on NPR this morning. He suggested that the issue the fed keeps talking about is valuation, i.e. that there's no market for them because people won't sell at the distressed prices being offered because of uncertainty as to valuation. O'Neill said that if that's the issue, purchasing them isn't necessary. If the fed, as it claims, can adequately value the mortgage-backed securities, there's no need to purchase them. Just give full-faith-and-credit backing to the bonds to pay the amount you're valuing them at on date of maturity, and there's no remaining reason why people shouldn't be willing to purchase them.
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