Sunday, March 16, 2008

Am I Missing Something?

by Tom Bozzo

A theme that's going around (for good reason) is that the serial Fed bailouts are a form of covert nationalization of the financial system. It strikes me that an important distinction between the current goings-on and a canonical nationalization is that the Fed's term lending facilities allow the taxpayer to take on risk via the possibly radioactive assets move to the Fed's balance sheet without capturing any proceeds of re-privatization. Indeed, it doesn't even seem that the public even stands to collect a moral hazard-compensating penalty interest rate. (To be clear, my concern here is with how the public is compensated for the bailout, not with the bailout per se.)

Since the Republicans presiding over what otherwise looks like the demise of postmodern financial capitalism are trying hard to forestall what may be less friendly public interventions — witness the WPE warning about overcorrection — this seems to be considered a feature rather than a bug.

So what am I missing?


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