Hearing about the Obama plan on BBC R4, my first reaction was but this is an obvious disaster for the tax-payer; a give-away to those who invest in it. If I had spare cash and lived in the USA, I’d certainly buy in. I would blog it, but the obvious suspects have already done so and said what I would have more lucidly and with greater credibility, so I won’t bother.

Comments

  1. #1 Aaron Bergman
    2009/03/24

    Isn’t anything going to be a disaster for the taxpayer? If those losses really exist to the extent that they might, they have to go somewhere. I mean, it’s not like the shareholders in most of these banks have much value left. You could just leave the counterparties holding the bag, but don’t you risk another Lehman, then? Either you nationalize the losses and screw the taxpayers that way, or you risk destroying the financial system and falling into a new great depression. Not great options.

  2. #2 Ken Fabos
    2009/03/24

    This is off topic but I just read THE MYTH OF THE 1970S GLOBAL COOLING SCIENTIFIC CONSENSUS and want to say it’s a job well done. I was interested particularly in the 1975 National Academy of Sciences paper “Understanding Climatic Change” and tried to find it online. NAP website was uncooperative with 225 papers coming up on a search using that name but none were the document in question. Might you have a link to that document? Reference to what the leading US science advisory body had to say at the time seems relevant whenever this false argument appears.

    [Thanks! I have NAS '75 but I've never seen it online. Maybe I should scan it... -W]

  3. #3 Phil
    2009/03/25
  4. #4 Magnus W
    2009/03/25

    You could do what Sweden did in the 90:ies… nationalise the bank(s) and make sure to take back what’s lost when the wind turns.

  5. #5 Nicolas Nierenberg
    2009/03/25

    The key to whether this is fundamentally a good idea is whether the mortgage assets that will be purchased are fundamentally sound. There are many examples of assets that have value but are avoided because the are illiquid.

    As a kind of crude example I might believe that a house would be an excellent purchase for my family. But a cult committed suicide there in the past. So even though I’m not superstitious, and don’t care about that, I won’t buy the house because I know that many other people would never buy it from me.

    Weirdly then both the people who see the value and the people who don’t will avoid the asset. This well could be true in the case of these mortgages in which case if the government causes the market to restart the correct value would tend to appear.

    I agree, however, that to the extent the government takes so much of the risk on the purchase the incentive for the private entity is to price the asset too high.

    If this winds up working the banks will make money, the investors will make money, and the government/taxpayer will make money. This will be “created” money that doesn’t come from anyone else, in much the same sense that money is “destroyed” when asset prices fall.

    Of course if it doesn’t work then the government/taxpayer will bear the brunt.

  6. #6 Alexander Ač
    2009/03/25

    Well,

    global economy is *not* going to grow anytime soon (and global population will only follow global economy output). Does Obama know that?

    One doesn’t need to be a genius, to figure out what will happen, if total amount of available primary energy is going to be lower. We surpassed *peak oil* in 2008, thus *peak energy*, *peak food*, *peak popullation* and indeed, *peak everything* will follow, until we find relevant (i.e. both cheap and reliable) substitute for fossil energy. Up to now, we didn’t find anything close to that. See summary be Gail the Actuary over at TheOilDrum.com:

    http://www.theoildrum.com/node/5230

    only way to avoid social collapse is to speak loudly, that peak oil is reality, and that we do not have substitute. This, of course may change in the future, and then we can grow again for a while… for now, this should somehow motivate people to have less children. (the last sentence was a joke, because every day there is +150 000 more people on Earth)

    best,

  7. #7 outeast
    2009/03/25

    Aleše, old chap – there’s still plenty of coal:)

  8. #8 Alexander Ač
    2009/03/25

    Dear outeast,

    coal it, among others, the worst enemy of climate (and air). Still, there is not so much coal as you might think – see David Rutledge for more:

    http://rutledge.caltech.edu/

    and then, you want to replace oil by coal? you can do it, for a while, as increased energy and emission cost. It is just as stupid as tar sands or oil shales…

    In the meantime, China has became net coal importer…

  9. #9 gravityloss
    2009/03/25

    Alexander, I’m afraid the best alternative could be advanced nuclear, mainly LFTR. The fuel, Thorium, is plentiful and the waste generated is little. The problems are only engineering scale, not anything like with fusion.
    Time to restart the development that was halted in the seventies.

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