Thursday, September 25, 2008

What About the Exit Strategy?

If Congress and the President put together some new government unit to buy up some number of Mortgage Backed Securities, when will that unit get out of the MBS business? Or will they continue buying up bad paper, in perpetuity, becoming the modern equivalent of the Tennessee Valley Authority?

I don't like this bailout plan at all. I think a bonfire is exactly what is needed to clean the dead wood out of the financial market forest. I won't shed a tear for people who go down in flames.

Do not buy the argument that these MBS will be a good investment for the government. The bad paper in question is a collection of collections of loans made on property that was never worth what people thought it was worth, to people who only had equity if the value of the overly inflated property got even more inflated that it already was. Both the people who made the loans and the people who got them now recognize their mistake. Now the government is going to make the same mistake they made, with full benefit of hindsight.

Both lenders and borrowers have been trying to get out of these loans. This deal gets the loan makers out of their end of the bargain. What about the loan takers?

They'll still be stuck in houses they can't afford. Pardon me if I don't cry for them, either.

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