Overnight Thread

I sat down to write about the Senate bailout bill and realized it's all already been said. I continue to oppose the bailout because of the moral hazard associated with progressively bailing out undeserving industries. There are better ways to deal with a credit crisis (losing mark to market is a good start; so is increased Federal lending to make up some of the lost supply). Also, I just don't like to see a bad actor like Secretary Paulson be rewarded for behavior which exacerbated the crisis (this is spiteful, I know, but there it is).

Once Congress gets off the fence and either takes action or unambiguously announces that it will take no action, commercial paper will begin to move more readily again. The fact is, just as borrowers continue to want to borrow, lenders want to do something with that cash. The absolute worst thing they can do is let it sit idle. They're only holding out now because the possibility of getting a better deal out of Congress than each other still appears to be a possibility. The abandonment of the mark-to-market rule is a good first step; raising the FDIC maximums isn't going to make a difference. If Congress absolutely must do something, it would be better to focus on credit and let the failing banks declare bankruptcy. Bankruptcy doesn't mean they or their assets disappear. Rather, it means that they will get new owners (hopefully ones that will make better decisions).

Anyway, you've read it all here before and I'm extremely discouraged by passage of the Senate bill.

Consider this an open overnight thread.

posted by Gabriel Malor at 01:39 AM

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