Bailout Needs Bailing Out

It looks like the "bail out bill" has failed.

I'm a bit ambivalent on this. Duncan Black (AKA Atrios) is against it. On the other hand, Paul Krugman is for it. I have been an avid follower of the business pages and the general mortgage paper mess but one thing I'm sure of is that I don't know enough to know if this is a good idea or not, so my best option is to look to the opinions of those who know more than I.

Fundamentally I'm not convinced that this is necessary. Look, there's a really big problem, but it isn't a short term cash problem, it's a "people borrowed lots of money and made terrible investment decisions with it" problem. If the government rescue plan pays market rates for all this bad debt, the banks will still fail. If the government pays enough to actually rescue the banks, the treasury department (i.e. us) loses billions. Because of this, a bail out without government equity (government buying or taking over the stock rather than only buying bad debt) is going to have problems any way you slice it. We may be better off just taking the banks as they fail.

The other major problem with this whole thing is that it will be implemented by people chosen by George W. Bush. Every major policy created or administered by people chosen by George W. Bush has been at best a failure and at worst a disaster beyond what anyone would have thought possible. I don't trust people chosen by George W. Bush with $700 Billion dollars.

I like Brad Delong's plan here.