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Posts Tagged ‘financial crisis’

Alex Tabarrok makes a good point:

Notice how the term nationalization confuses the issue.  First, it suggests government ownership of the banks which would indeed be a disaster.  People in favor of free markets will rightly want to avoid any such outcome but ironically it’s the current situation of “wait and see,” and “protect the banker,” which is likely to lead to an anemic recovery and eventual government ownership.  Second, it confuses people on the left who think that nationalization is a way to insure that taxpayers get something on the upside.  That idea is a joke – there is no upside.  Taxpayers are going to have to pay through the nose but the critical point is that the taxpayers must pay the depositors whom they have guaranteed not the banks.

The debate so far has been framed between a “bailout” and “nationalization.” But the public rightly sees the bailout as a way to protect bankers and thus we get pressure for government ownership, which has already happened in part through government control over banker wages.  Bankruptcy in contrast is a normal free market procedure, it emphasizes that the firm has failed and current management should be removed.  Framing the issue in this way, for example, makes it clear that only the depositors should be protected and under reorganization there should be no control over wages on future management (wages are going to have to be high to get anyone to take on the task).  Finally the idea of bankruptcy makes it clear that the goal is to get banks solvent, under new management, and back under private control as quickly as possible.

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Having a Wall Street boyfriend isn’t as attractive when there is a financial crisis.

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Tyler Cowen writes:

Yes, 40 percent of the Obama stimulus package will be a tax cut.  It’s already a talking point that “the Democrats have lost their nerve” but the reality is not so devious.  Obama wishes to deliver on his pledge to cut taxes (always electorally popular) and upon close inspection the economic team probably hasn’t found a lot of first-year stimulus spending it likes.  That leads to this obvious policy conclusion and of course it is very good news.  No, I do not think these tax cuts will drive recovery but a) less money will be wasted, and b) it shows that the Obama team is willing to flinch and be realistic, not just as a final compromise but indeed as an opening gambit.

I agree.

So far, all of Obama’s actions — from his excellent economic appointees to the current package — show that he is more a pragmatist than a far-left idealogue. Of course this does not mean his policies, economic or otherwise, will be great; merely that they will be less bad than some had feared. 

By the way, the Obama’s stimulus package is giving Paul Krugman “post-partisan depression”. Now that is definitely a great thing.

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