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