“Mother of All Bailouts”

Interesting columns via nakedcapitalism- 12 July 08

Restructure Fannie, Freddie Debt, Skip “Mother of All Bailouts” – Nouriel Roubini

US: The Most Deceitful Form of Socialism? – Willem Buiter

It is interesting that the investors both want the extra returns from GSE’s not being government guarantied but also want the government guaranty. After all, if they were government agencies, it would be socialism and we can’t have that. So we pay bondholders the extra spread to pretend that they aren’t. Wouldn’t the bondholders be shocked if they were actually asked to suffer the consequences of their bad investments?

Less moral harzard but more policy interesting is the comments on the U.S. following a long-time policy of subsidizing non-productive investments rather than productive investments. Some of us remember the Reagan real estate tax subsidies that gave the U.S. the world’s most modern stock of vacant buildings. Perhaps we should give capitalism a chance.