Saturday, September 20

The Conspiracy to Keep You Poor and Stupid  

David L. Luskin writes:

$700 BILLION IN INVESTMENT, NOT SPENDING Whatever one may think of the proposal for the federal government to buy up to $700 billion in mortgages, this is not correct way to think about it. A commentary in the today's New York Times compares the $700 billion "bail-out" to the far lower costs of various federal expenditure programs such as Head Start and NASA, concluding with the critique that

...while the federal bureaucracy has not been able to come up with astronomical sums of money to pay for health care and other needs, it seems prepared to do just that to alleviate a financial upheaval, especially since the tremors would otherwise be felt far from the canyons of Wall Street.

The fundamental mistake is that the $700 billion would be used to invest in income-producing assets, not to fund consumption. A dollar spent in Head Start, say, or in socialized health care, is gone forever, even though its expenditure may produce a benefit for whomever receives the service it funds. But a dollar spent on a mortgage earns interest, and can eventually be sold — perhaps even at a profit. And in the meantime, if the government's temporarily holding these assets helds unlock the US real estate and securities markets, then so much the better. To be clear, I'm not endorsing the federal government investing $700 billion in private assets. But love it or hate it, it is investment — not consumption.

Red highlighting mine.

That's an assumption. Quite an assumption. What I'm definitely afraid of is that the dollars spent will be spent on totally worthless paper. Is all of this money for actual mortagages, or is this just going to be a buy-out of derivatives? In other words, I see this as bailing out the losses from the banks that the banks deservedly should be eating. We've already gone into the moral hazard.

I also doubt the $700 million, I'm thinking at least $1 trillion, if not $1_½ trillion.

I'm also thinking that things should fail at this point, because they are going to fail sooner or later (with the US government deficit already over $10 trillion, something's going to catch up sometime), and later is going to be more painful than sooner. Later also makes it much more likely that the US turns into a second world if not third world country.

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