While I was away, Tyler Cowen wrote something with which I strongly disagree:
If you’re a critic of bailouts, you can’t have it both ways. If the Fed or Treasury is guaranteeing loans, yes that does put taxpayer dollars on the line. But if you think the system can hold up, as do most bailout critics, those guarantees are unlikely to cost very much. The Fed or Treasury may even turn a profit. If you think the system cannot hold up, the bailout is probably necessary even if costly. So you can’t claim: “The bailout isn’t needed” and also “The bailout will burden taxpayers.”
Uh, no. I think the bailouts (of both homeowners and banks) are a bad mistake despite, or rather, in fact, because I think the system cannot hold up. The system revolves around the sale of squirrel carcasses. The folks involved in the system made a lot of money selling squirrel carcasses and calling them fillet mignon. Now that we all know what the “market” was about, the best thing that can happen is for it to be severed as quickly and efficiently as possible from the rest of the economy, which means, to make all of those who are involved pay the price.
But Cowen is right about one thing, though – it is possible (though I wonder how likely) that the Fed or the Treasury may turn a profit. But if it does so, its by making the last greater fools, and the greater fool theory tells us someone is always a last greater fool, pay. Not all the folks who were involved are still there – when the problems began, they found someone else, a bit less informed, a bit less sophisticated, to buy their share of the bag. Many of those greater fools are homeowners, many are shareholders or employees of some of the big banks. In some cases, the big perps themselves may take a hit. But not in all.
Regardless, I can’t see any excuse for a bailout at this point, and if there is a bailout, I can’t see any excuse for one that doesn’t provide the taxpayer with the potential for a lot of upside (i.e., nationalization).