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« ETF Update: Some Tasty Chips? | Main | ETF Update: Hope for Consumer Stocks? »

August 18, 2008



In 1995 Clinton's Treasury Dept provided 20 billion dollars as part of a larger 50 billion $ bailout of Mexico. Conservative free marketers screamed and bewailed about how the nefarious Bill Clinton was wasting taxpayer money on a bunch of deadbeat Mexican socialist. But in point of fact not a single taxpayer dollar was wasted. In fact, the Treasury ended up making about a half million dollar profit on the deal.

If we can bail out Mexico why can't we bail out our own mortgage industry? The cost will certainly be no greater (in inflation adjusted dollars) than was the Mexican bailout And the profit to taxpayers can be substantial with little or no risk. As long as the GSEs continue making operational profits there is little to no real risk of a bancrupcy that can wipe out investors. And there is just no reason to think that the cash flows will suddenly reverse and they start to lose real money.


The free market fundamentalists in the administration, Paulson's foes, launched the dirigible in the estimable Barron's.

Paulson's game-theory-based threat of de facto nationalization - intimidation of the shorts - is the reason for the seemingly over-the-top unlimited support in the 'housing' bill. He said as much. Rep. Frank said it too.

Free market purists hate the elegance of the Paulson maneuver and despise his skill at getting Congress to agree. But complaints about Paulson "socializing" the GSEs are great fuel for rote GOP media machine spew to the faithful. The feedback is anger at Paulson. Anger at the GSEs. Anger. ...and money returning to the party via business reply envelopes that accompany those large-font direct mailings.

If the ploy works and the GSE's tank, Paulson is made to look like a fool. And the Ayn Randers win a round. The issue of letting American housing, the financial industry and the economy sink are secondary. Beltway baseball is primary.

Why do you think Paulson re-iterated his desire to depart? He knows his political cleverness, using - gasp - bi-partisanship, has made enemies of the Chenistas.

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