Betting on the Bailout
BETTING ON THE BAILOUT....Brad DeLong on the modified Paulson plan:
To get get a $500B macroeconomic gain in production and employment, Paulson wants to take on a position with an expected value of -$100B. But the true value of that position could be anywhere between +$200B and -$400B. Looks like a good bet to me.
I think that's right. In fact, I think the bet might even be a little better than that. With the equity provisions now in place, along with the plan's implied commitment to do whatever it takes to keep the economy stable even if it requires more than just the current bailout, there's a pretty good case to be made that taxpayers are unlikely to lose money on the deal. Conversely, although $500 billion seems like a reasonable guess about the cost in GDP contraction of doing nothing, there's a sizeable chance of it being way worse. In that sense, it's sort of like global warming, where you really have to pay attention to the small but nontrivial chance of catastrophe.
Still, at a minimum Brad is right: it's $100 billion vs. $500 billion. That's an easy bet. He also has about the best short summary of yesterday's events I've seen:
John McCain announces he is suspending his campaign, cancels on David Letterman, gets made-up for and does an interview with Katie Couric, goes and talks to the Clinton Global Initiatiive the following day, persuades Bush to call a meeting at the White House, gets to Washington DC in the afternoon, goes and talks to the House Republicans, goes to the meeting, sits in the back of the meeting and is evasive, and when the meeting breaks up, three things are clear:
John McCain won't say what financial rescue packages he supports or opposes.
George W. Bush won't say that support for Paulson is a test of Republican loyalty.
The House Republican caucus doesn't support their leaders.
The House Republican caucus doesn't have an alternative plan.
That's quite an accomplishment. It is hard to read it any other way than as John McCain rallying the House Republicans to blow up the bipartisan agreement that was being negotiated. The House Republicans don't want to do anything to hold CEOs accountable, to protect taxpayers, protect homeowners, or provide oversight. The Treasury rejected the not-quite-ideas they put forward at the White House meeting last week.
And he passes along this nugget from Politico:
According to one GOP lawmaker, some House Republicans are saying privately that they'd rather "let the markets crash" than sign on to a massive bailout. "For the sake of the altar of the free market system, do you accept a Great Depression?" the member asked.
God save us from the Republican Party.