Word: bailouts
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...exactly, is this bailout supposed to 'save' credit markets? Not entirely clear. Paulson and Bernanke described it as a way to jumpstart trading in mortgage securities for which there's no market at the moment, thus allowing banks to clean up their balance sheets and get back to lending. But a lot of economists outside government believe that the real problem is that lots and lots of financial institutions are insolvent--their losses, if they actually recognized them, are enough to wipe out their capital reserves. If that's true it would make more sense for taxpayers to give them...
...mail from a reader late last week with a bunch of very good questions about the bailout bill. I hadn't quite finished answering them when it was voted down in the House Monday. But since some version of the plan is likely to be resurrected later this week, I figured I should go ahead and finish...
...bailed out? Won't it just make them all the more eager to engage in risky practices in the future? Are we bailing out the very people who created the problem? A lot of the people who created the problem have already lost their jobs, but yes, any bailout risks rewarding the profligate and the foolish. But we're getting to the point where financial sector problems are starting to hurt people who didn't profit from the boom. And you can design a bailout that's not so much a bailout as a new start--such as the Swedish...
...there any chance that any of the bailout money will be recouped? Yes. Mortgage-backed securities are still, you know, backed by mortgages. They're worth something--and in some cases more than what the feds would pay for them...
Without the bailout, is it really likely that we will see the end of the world as we know it? And what, exactly would that Apocalypse look like? Given the existence of the FDIC and the activist stance of the Federal Reserve, it's hard to envision a 1930s-style breakdown in which banks shut their doors and depositors lose all their money. I think the fear is of a situation where lending to both businesses and individuals stops almost completely, which would lead to a pretty sharp downturn. Not nearly as bad the Great Depression, but the worst...