Sunday, April 21, 2013

More Equivalences, False or Otherwise

This may not be new (little is) but it's new to me.  Anyway, the topic is bankers, their crimes and follies and the running dogs who defend them.  And in particular, the recurrent howl that it is all the fault of the GSEs--Fannie and Freddy,  their implicit government guarantee.

As it happens I don't think the GSEs are the culprit, but I do agree on the implicit guarantee: bad policy, shouldn't have happened.   But here's the thing.  In retrospect, isn't the problem that everybody had a government guarantee?  How is the policy we followed with the GSEs any different from what we did to (for) AIG, and through them Goldman Sachs, and also Citibank, to name only the most egregious examples?  Have any of those who criticize the GSEs--has any of them spoken out against the corruption that ensues from bailing out the entire banking system?

And while I'm at it, I can think of another.  We've heard lots of whining the last few years about  the evilz of nonrecourse finance and jingle mail--how the debtors can just toss the keys on the table and walk away from the mortgage.

I've never been much impressed with that line of reasoning.  So far as I can tell, nonrecourse has been baked into the cake since the depression which ought to be time enough for even the most slow-witted banker to grasp its implications and price it into its detail.  It's just like--

Well you know what it's just like?   It's just like banker compensation.  Heads I win, tails you lose.  Succeed, I get the big bonus and go to the seashore. Fail and you pay.  Well, not you, of course--the government, the taxpayers, with that implicit put, but you get the idea.  In any event, can anybody show me just one person who fulminates against nonrecourse and also against banker bonuses?

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