So the Obama administration is leaking its latest greatest financial bailout plan to the New York Times, and the very first thing I thought was that Geithner must have hired Henry Paulson to work it out, because, aside from some extra polish (we’ll have auctions to determine how much these mortgages are worth!) it’s the same damned turd Paulson originally pushed through Congress as the Troubled Assets Recovery Plan, and it’s as stupid now as it was then. Paul Krugman explains why, but the short answer is that Obama and company seem to think we’re in a bank panic rather than a recession, and that we can buy our way out by paying bankers top dollar for the big huge mortgage dump they just took on us. The Financial Times gives a convincing explanation of why this is bunk.
The fact of the matter is that home prices got swollen beyond all reason, and if the government pays top dollar for these upside down homes, they’re going to get screwed in the end, because people are and will continue to walk away from mortgages where they owe hundreds of thousands of dollars more than the home is worth. Nothing that happens in Washington is going to make anybody pay a million bucks any time soon for the house I’m sitting in in California. The notional buyers of these CDOs know that’s probably true, and this plan just allows them to make a highly-leveraged gamble with taxpayers money: only 3% of the outlay is from private parties! Does that sound at all familiar to you? Because if you’ve been paying attention it should!
Or maybe I’m just sore because this deal is beiing offered to financial wizards on Wall Street and nobody’s offering me a piece.
