Public-public partnerships

Matt Yglesias wants the public to be able to participate in these sweetheart deals we're handing banks.  A couple of problems I see with this:


  1. It's only a sweetheart deal if you at least kind of know what you're doing.  Look at the stock market crash, and tell me that the broad public needs to be given the opportunity to take highly leveraged bets on complex securities. They couldn't even figure out that Kosmo.com wasn't going to work.
  2. Adding the public to the mix defeats the alleged purpose of the program, which is price discovery of the probable value of these assets, a la James Surowiecki's The Wisdom of Crowds.  The public has even less idea than the bankers as to what these assets might be worth. If you substitute some sort of government manager, he won't particularly care what they're worth; it's not his money. Wall Street will do a very imperfect job at valuing these assets, but the public will be even worse.
  3. Non-recourse loans aren't costless to individuals:  they show up on your credit score if you default, which is why foreclosure is so painful.  Is Congress going to mandate that the credit bureaus ignore this information?  You could mitigate this by setting up an intermediary, but that has substantial administrative costs, and almost certainly wouldn't be ready by go-time.
The taxpayer's gift will be not having double-digit unemployment and a ten-year recession if all the banks linger on in the land of the undead.  This is, of course, very cold comfort, the more so because there's no way to observe the awful pickle we might be in if we don't use fleets of repurposed sanitation trucks to drown Wall Street in money.
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In