Wait, Wait, We Will Buy Those Toxic Assets, A.K.A. Our Serfs' Houses...

Nick Gillespie | November 25, 2008

In the on-again, on-again dramedy that is the Bush Bailout (soon to become known as the Obama Bailout), the government, in the guise of the Federal Reserve, is now ready to buy up $600 billion in bad mortgage-backed securities:

The Federal Reserve said Tuesday it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.

The program on consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans. Treasury Secretary Henry Paulson had said recently that the government was working on the new program, which will be supported by $20 billion of credit protection provided by the $700 billion bailout fund.

More here.

Run for the hills—which, I hasten to add, have become a lot more affordable lately.

What worries me the most about these seemingly endless string of actions is that they replicate the absolute worst part of the FDR's response to the Depression: an undending string of generally misinformed attempts to fix things.

As Amity Shlaes documented in her excellent history of the New Deal, The Forgotten Man, it was precisely Roosevelt's ethos of "bold, persistent experimentation" that kept everyone guessing about what intervention might come next and how it might completely undermine the previous reform. The net result is to freeze people's actions rather than get back to anything like business as usual or adapt to a new normal (however bad that new normal might be). Within pretty broad limits, certainty—even a very ugly, harsh certainty—is much better than continuing uncertainty and drift when it comes to restarting economic activity, investment, and the like. Between the Bush administration's stutter-start actions and what is almost certain to be a whole start-over once Obama takes office, all manner of problems are being strung out longer and longer.

reason on the bailout here.

reason.tv on the bailout here and below, where UCLA economist Lee Ohanian, coauthor of a new paper that explains how the New Deal prolonged economic misery by seven years, discusses the current "bailout puzzle":

Comments

Janis|11.25.08 @ 9:42AM|#

Oh Lord, won't you buy me a Mercedes Benz

|11.25.08 @ 9:44AM|#

I think my solution to this problem is going to be buying a lot of guns and ammo...but with a credit card.

|11.25.08 @ 9:45AM|#

But- they're here to help us.

|11.25.08 @ 9:49AM|#

Why does the government hate affordable housing?

|11.25.08 @ 9:51AM|#

Has Reason done an article about Peter Schiff? He's a money manager who warned about the economic crisis two years ago. He subscribes to the Austrian school of economics, and was an advisor to Ron Paul.

http://www.npr.org/blogs/money/2008/11/hear_peter_schiff_is_warning_y.html
http://finance.yahoo.com/tech-ticker/article/134633/Crisis-Only-Just-Beginning:-Right-About-the-Crash,-Peter-Schiff-Sees-More-Pain-Ahead

PC|11.25.08 @ 9:52AM|#

"What worries me the most about these seemingly endless string of actions is that they replicate the absolute worst part of the FDR's response to the Depression: an undending string of generally misinformed attempts to fix things."

I still fail to understand why people stick to "virtue" when we are getting robbed. They are not misinformed, that is just the shit they say while they are robbing you. Bums don't come up to me and ask me to fix their crack scarcity problem, its always for "food" or "bus fare" or something or another. Of course when I try to find out what the bum is going to do with the money once I give it to him he gets very defensive because he doesn't want to prove himself a fraud.

So when a bunch government officials who were and will be banking execs come to you for 700 billion dollars to "inject liquidity" or "fix their credit scarcity problem" they are just robbing you. They are really just saying "my friends all got too greedy and screwed up so we're going to give them a ton of cash and you will face the consequences and be given no money unlike the guys who got greedy who will get billions. Have a coke and a smile and shut the fuck up."

The only people that are misinformed are the ones who think the people doing this are misinformed, they may be guilty of misinforming but they are in no way misinformed.

Oh and let me guess, these "misinformed" attempts to "fix the economy" are going to result in further loss of privacy and freedom. I guess that is just an "unintended consequence".

|11.25.08 @ 9:56AM|#

So what exactly are they buying? The mortgage-backed securities? The mortgages (and notes) themselves?

Because "mortgage-backed securities" and "pools of mortgages" are two different things. The former are bonds that are paid from the stream of income off the mortgage pool itself, which is held by whoever issed the bonds.

Would it kill the AP to write a coherent article on this? I realize its only $600BB, but still . . . .

PC|11.25.08 @ 10:01AM|#

"Warren | November 25, 2008, 9:49am | #

Why does the government hate affordable housing?"

They don't they just want a monopoly on it. That is what also gets me. They want to prop up the home prices so renters who saw the bubble and realized that it was BS, and waited for it to pop before he was going to become a homeowner will get screwed. Not only that he will now have to pay for the problem he avoided. Now he will continue to rent because the housing market will be artificially propped up and prices all around him will rise due to the flood of dollars.

It's kind of funny that people years ago thought that miniscule taxes was tyranny and they killed people over it. Now we just sit on our hands when far reaching decisions that will make your life worse coming from people that lie to you repeatedly.

Kyle Jordan|11.25.08 @ 10:01AM|#

To paraphrase the best tv show of all time

"The dick's already in our asses. Now, it's just a matter of when it comes out."

PC|11.25.08 @ 10:04AM|#

"So what exactly are they buying? The mortgage-backed securities? The mortgages (and notes) themselves?"

All the shit that nobody wants to buy on the market. The sellers now look around and see a shortage of suckers so they go to the biggest sucker that they know, the American taxpayer.

Kyle Jordan|11.25.08 @ 10:04AM|#

"Or if it does..."

In our present case.

|11.25.08 @ 10:04AM|#

Would it kill the AP to write a coherent article on this?

So, it wasn't just me? Phew.

tarran|11.25.08 @ 10:07AM|#

Would it kill the AP to write a coherent article on this?

Based on my experience with the critical thinking skills and writing ability of journalism majors in my college, probably yes.

Associated Press|11.25.08 @ 10:11AM|#

"Would it kill the AP to write a coherent article on this?"

What do you care? That is what we have experts for. Do you have multiple degrees and years with companies like Goldman Sachs? Then please sit down and be quiet. FDR will be our President shortly and we know what's better for you than...well...you.

.|11.25.08 @ 10:15AM|#

There is a name for a system of "socialism for big business": it is called fascism....But what all of today's pressure groups are busy evading is the fact that neither business nor labor nor anyone else, except for the ruling clique, gains anything under fascism or communism or any other form of statism--that all become victims of an impartial, egalitarian destruction.

The Ayn Rand Letter
Nov. 8, 1971

SIV|11.25.08 @ 10:30AM|#

I was so happy to see holding most of my net worth as cash in an insured MM account and having no debt made me look like a "financial genius". The Government is bound and determined to make me look like a chump.I still think they fail but I am metaphorically not sleeping as well as I was the last 2 weeks.

If they absolve debtors and/or make the gold bugs rich I'm going to be more than a little pissed.

Russ 2000|11.25.08 @ 11:09AM|#

Would it kill the AP to write a coherent article on this?

Apparently the answer is YES. Exploding brains and all that.

|11.25.08 @ 11:13AM|#

We need this terabuck so we can buy toxic assets and settle the banking sector.

No wait, now that we've thought about it, we need to inject liquidity into the banking sector instead.

On third thought, we're gonna buy up some of those toxic MBSs after all.

Remember, this was a bailout that everybody from Barney Frank to GWB agreed had to be done RIGHT THIS GODDAM MINUTE! NO TIME TO WASTE!! THE ECONMMOMY WILL MELT IF WE DON'T ACT NOW!!!

How many weeks ago was that? Our lawmakers look like a bunch of rubes playing three card monte.

|11.25.08 @ 11:22AM|#

Do you have multiple degrees and years with companies like Goldman Sachs?

Err, yes. That's why I know that your equation of "mortgage-backed securities" with "pools of mortgages" is wrong.

|11.25.08 @ 11:23AM|#

Our lawmakers look like a bunch of rubes playing three card monte.

Which wouldn't be so bad if they weren't betting my money.

|11.25.08 @ 11:26AM|#

Currently reading "Atlas Shrugged" right now and its upsetting how many parallels I am drawing. Why does our government hate its citizens?

egosumabbas|11.25.08 @ 11:29AM|#

Typical bait and switch action. Paulson begs for 700 billion to buy distressed assets, but reneges and uses it for other purposes. THEN when that money runs out, he asks for another 600 billion to do the thing he was supposed to do but did not.

Not that it will matter anyway. Whatever we do it will simply be more flailing about.

I had an interesting discussion with my family the other day. We're "lending" 30 billion to the automakers. Imagine that instead, we simply bought a GM car and allowed 1/10th of the population to get a free car by lottery. I'm not advocating this, it's merely a thought experiment. While we're crashing the economy we might as well get free crappy cars out of the deal.

egosumabbas|11.25.08 @ 11:31AM|#

"Currently reading "Atlas Shrugged" right now and its upsetting how many parallels I am drawing. Why does our government hate its citizens?"

I haven't read it, but the title is becoming more and more apt day by day. Sooner or later the productive citizens of this country will simply shrug off.

I'm thinking of starting a gold bank/ammo depository in my neighborhood. Anybody want to join me?

Naga Sadow|11.25.08 @ 11:40AM|#

Sorry egosumabbas but when the bottom drops out I don't intend to peacefully co-exist with my fellow man. I'm turning warlord. Rule by the gun, sword, and flagrum(props to Nick M.) in my realm. Though I agree putting all your gold and ammo in a single spot will make it easier for me plunder.

egosumabbas|11.25.08 @ 11:43AM|#

"Though I agree putting all your gold and ammo in a single spot will make it easier for me plunder."

Ah see, I've figured that all out. Ever see an ammo cache explode at an inconvenient time?

Naga Sadow|11.25.08 @ 11:46AM|#

Ballsy of you. I see you will never make a proper serf. Perhaps I could interest you in a position of power? Marchwarden of Texas sound good?

egosumabbas|11.25.08 @ 11:48AM|#

"Marchwarden of Texas sound good?"

I don't have to kneel, do I?

Naga Sadow|11.25.08 @ 11:52AM|#

How else can I knight you and appoint you Marchwarden of Texas with the right to dispense justice(high, middle, and low) and generally run amok?

egosumabbas|11.25.08 @ 11:56AM|#

That is quite tempting. Throw in a gold-plated AK and you have a deal.

|11.25.08 @ 12:02PM|#

Russian guys beat you to the punch

robc|11.25.08 @ 12:02PM|#

Currently reading "Atlas Shrugged" right now and its upsetting how many parallels I am drawing.

Im reading The Illuminatus Trilogy (Ive owned to for nearly 20 years and never finished it) right now and ditto.

|11.25.08 @ 12:55PM|#

Say you have a zillion dollars. You burn it. The goobermint loans you a zillion or two dollars to make up for it. The goobermint gets that money by borrowing or taxing (or invisible taxes aka inflation). Long story short - you are a zillion dollars poorer. The zillion is gone - I hope the roasted marshmellows were tasty.