March 24, 2009

A Public-Private Partnership

A good friend of this blog sends a link. Arnold Kling explains the latest Treasury plan, in March terms:

Suppose that a week ago I had entered a March Madness pool, paid $10, and filled out a bracket.

Suppose that right now my bracket is looking weak, with only about half the teams I picked to make the sweet 16 still in the tournament. I have not been mathematically eliminated from winning the pool, but I need extremely good luck the rest of the way. (Incidentally, this example is hypothetical. I don't follow college basketball, and I don't enter any pools.)

At this point, my entry is no longer worth $10. If I were to sell it, I might get fifteen cents for it. If I were a bank, my bracket would be a toxic asset.

Now, along comes Tim Geithner with a fistful of taxpayer dollars..."


You've read half of it, click through and finish.

Economics and Markets Posted by John Kranz at March 24, 2009 2:28 PM

jk: theoretically, it's kind of like putting these "toxic assets" in InTrade and seeing what people would be willing to risk against the odds of the asset paying off.

I think Mr. Kling is onto something - a creative, free-market way of selling off the assets to whatever willing buyers there might be out in the investing public. Could we put them into shiny aluminum briefcases and have Howie Mandel broker them off a la "Deal or No Deal"? Could we just peddle them on eBay? Seems to me eBay might be a good market for them; we could see what people will bid. Some buyers will get a bargain, and some will get worthless paper - but at least they're freely assuming the risk.

Picture this: Monty Hall says to you: "you're holding a March Madness bracket of questionable value. Do you want to keep it, or do you want to trade it for the check behind Door Number Two, where Timmy Geithner is standing?"

Posted by: Keith at March 24, 2009 6:51 PM

If he shows you the empty door first, take it.

Posted by: jk at March 24, 2009 7:06 PM


Another great one from Dr. Kling; his analyses are getting more and more lucid (and readable!) every year.

A great one from Kudlow was on TCS Daily last week (where I first found Dr. Kling) noting how the FASB rules changes to allow cash-flow accounting to prevail over the silly distressed last-trade mark-to-market will do as much to rescue the financial markets than anything Geithner is likely to propose, probably more.

Here's Kudlow's article, but it's still heavy on the heat and deft with the light: http://www.tcsdaily.com/article.aspx?id=031809A

Posted by: nanobrewer at March 26, 2009 7:43 AM

That won't work, nanobrewer, at least not for the government. That would be negating what government did to help fuel the crisis, when what government wants is to create new regulations to fix something it screwed up in the first place.

As I recently wrote on my own blog, the feds instituted mark-to-market accounting at the worst possible time. It was not a coincidence. I directly accuse the feds of doing it deliberately to blow things up, thus preventing banks from lending. Then the feds step in: "Say, you need capital so you can lend again? No problem, take some of ours -- but we want an equity stake in youse."

Posted by: Perry Eidelbus at March 26, 2009 10:05 AM

Ooooh, Perry, I try to stay away from the conspiracy-mindedness of the deliberacy of gummint actions. I prefer, in general, to lean towards the Heinlein premise: "Never attribute to malice that which can be adequately explained by stupidity."

Sure, there are elected officials who are Socialists, and others who are but don't realize or accept it. More specifically, I believer bureaucrats act to enlarge their own serving tray. One of the most important components of enlarging a bureaucracy is increasing its public image. M2M has been pushed around for a long time, I've been hearing about from Libertarian econoblogs for quite a while (and think it was active in some areas, previously). I think with the elevation of The One, all the liberal kooks are out of the woodshed at no time since Pandora opened that damned box.

So, no, I don't think the people who enacted M2M rules were out to destroy US Capitalism; if they were, then the rules would not have been reversed so quickly (hmmm, was it a quick reversal?)

Now, I do share you concern about those in the the ranks of the unelected; but usually they have to march to the speed of whomever is pounding the drums; the time of the Obamacons is quickly fading, I think.

Still, this is why those concerned with public liberty need to get out and preach the gospel of hard work and personal responsibility. I've been doing it for over 20 years, and got damn near hoarse by last September.

These current fiascoes were urgently needed to strip that many more megaphones away from the FraDodd's, and give them back to those that can speak to, and thereby expand the American experience.

I'll try to keep up here, as there's more to say and much, much more to do.

Posted by: nanobrewer at March 28, 2009 12:33 PM | What do you think? [5]