Monday, September 29, 2008

The Mother Of All Bailouts

Synthesizing the various takes from the econ bloggers I read, it seems to me like the bailout bill is A) gonna pass, B) not suck as bad as the original Paulsen "plan" did, C) at best, prevent another Great Depression from happening, and D) at worst, delay the real reforms needed to get the financial services sector functioning properly again, i.e. sensible regulations on the shadow banking system so that if it looks like a bank and quacks like a bank, by borrowing short and lending long, then it needs to be regulated like a bank: depositor insurance, limits on multiples and minimum reserves.

The optimists think the Treasury department can't possibly be as screwed up as the rest of the U.S. government, so of course, the bailout program won't be yet another episode of disaster capitalism straight out of Naomi Klein's book. The pessimists, among whom I should count myself owing to my natural tendency to be a doom-monger about economics, all seem to think that it's got to get a lot worse before the people who brought us this mess will be sufficiently discredited— some would say exsanguinated— that we can replace them all en masse with a corps of competent technocrats.

I'm inclined to go out on a limb and say that both the pessimists and the optimists are right: we need to pass this bailout bill, because we can't wait until the next congress to do it and this is the bill that will pass this congress and be signed by this president, but sadly, it probably won't be enough to keep the economy from unraveling. I've seen rumors on the web that a run on the hedge funds is underway. If so, then there will be a lot more blood on the street.

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