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Politics : American Presidential Politics and foreign affairs

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To: Peter Dierks who wrote (34250)	3/20/2009 3:06:37 PM
From: DuckTapeSunroof	Read Replies (1) of 71588

So I suppose we are theorizing about THREE different scenarios: 1) Do absolutely nothing. (No policy at all to react to the financial crisis). Likely results deeper and more prolonged near-term phase for the financial crisis and deeper initial trough in GNP. Also however, no "moral hazard". 2) Do as was done... TARP I & TARP II... TALP, etc. Likely results: truncated initial period of economic decline, but at risk of longer-term inflation (unless subsequently mopped-up). Also GREAT "moral hazard" as nearly all the Fat Cats who's extremely imprudent risk-taking and excessive leverage (example: AIG selling ten times as much in CDS based on subprime mortgage originations as existed in all the American subprime market in original paper to begin with... MASSIVE un-collateralized PURE GAMBLING. Other examples: 60-to-1 leverage at Fannie and 40 or 50-to-1 leverage at some I-banks) have their bacon pulled out of the fire, and all on the backs of citizens making perhaps 1/100th. of what they make.... 3) Option #3 --- rescue NONE of the financial institutions (or consumer products companies, or industrials, etc., etc.) Instead, use Ben's 'helicopter' and just 'air-drop' $10,000 to every man, woman and child in America. Likely results: Every bit as good a 'Keynesian' counter-cyclical economic stimulus (cutting short the plummet in GNP) as the TARP/TALP 'save the Fat Cats' policy, (with exactly the same long-term inflation risks unless subsequently mopped up), but with NONE of the "moral hazard". On the other-hand we lose (for a while anyway) the top tier of our banks.... Conclusion: crazy as it sounds, #3 probably has a better risk/reward profile then either #1 or #2. :-)

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