Thursday, October 02, 2008

Burlaki on the Thames defends the bailout

The Burlaki on the Thames blog defends the Emergency Economic Recovery Act of 2008 (a.k.a. TARP):
The objections to the plan run mostly along the lines of “how can we spend so much of taxpayers’ money to let those who caused the whole mess off the hook?” I happen to think that that point of view is terribly misguided.

You know who is going to suffer the most if the current financial crisis keeps spiraling downwards? The middle class. Not the rich — they will simply become less rich, but stay rich nonetheless. Not the poor — please forgive me my inadvertent snobbery, but the poor have little to lose, by definition. The middle class, conversely, will lose a lot when the corporations and consumers tighten their belts and spend less and less. A florist will not be able to sell her stock of roses, a waiter will earn fewer tips, a fledgling online business will see fewer orders. Thousands of corporate soldiers will be out of jobs. ...

The Great Depression destroyed a few financiers. It destroyed a lot more of Average Joes. ... Shouldn’t we be trying to take some action?


  1. Finally some cogent pro bailout arguments are making it through the populist rhetoric and protests about bailing out the fatcats". To be honest, I think this guy is underestimating what happens if we stay "sitting on our asses waiting for the natural bottom to hit in a few years."

    The goddamn ted spread & chattel paper markets are so out of whack we are F***ED!!! Up til the day Lehman died it they were still functioning - not anymore - we have got to get those down - fast.

    As I see it we have 2 months - tops before the entire financial system is at risk of collapsing. So much of our modern economy (particularly capital credit lines) are based on financial covenants that if broken could cause the whole thing to go down in series of cross defaults. Every day we wait is that much more unnecessary destruction we have to re-create. The bailout sucks, but its necessary - I see no way around it.

  2. Incidentally, if you dont want to listen to me, an anonymous drone on the interweb, listen to buffet.

    Yeah, the guy is biased because he has a stake in it, but so what? We all have a stake in the economy not melting down. As he points out (patient with a heart attack) if we had more time, we would come up with something better. We just dont have forever and a day to F around with this thing. Put it in place, restore a modicum of confidence to the market that so desperately needs it, and if it isnt workig right, amend it - and if its unnecessary - end it! Either way, the answer at this point is not "no". Unfortunately we are way beyond just "no".

  3. Can I just defer you to Mish's global analysis blog and Calculated Risk? Both post great arguments on why this bailout won't work, and why we should oppose it (as well as other economists points of view).

  4. If it doesnt work, the small bailouts weve had for the past few months will continue. Either way, were in it for 700 Billion. I say lets go for it.

  5. I can see why a Brit would like this since it's all about US Taxpayers paying for Euro/Chinese bad bank debt. I wish all US citizens would read the document outlining the theft....

  6. Anonymous said...
    "I can see why a Brit would like this since it's all about US Taxpayers paying for Euro/Chinese bad bank debt."

    He's not a Brit. He's an American citizen living in Britain. Americans pay U.S. taxes even when overseas.

  7. Thanks for the publicity, James. I have to admit that it amuses me greatly to find my idle musings next to a Milton Friedman's lecture.

  8. He's right. Hyperinflation destroys the middle class. The poor have no money to devalue, and the rich have off-shored their assets and diversified into other currencies or PMs before assets are nationalized or frozen. It's the middle class that is always hammered.

    And you can't have a democracy and vibrant, first-world economy without one.

    It's not going to be pretty.