Here's the NY Times article explaining it. Calculated Risk explains why it's not quite like the RTC. Actually, the buying of distressed mortgages from banks that don't want them sounds more like the original Fannie Mae. There is an important difference from Fannie Mae in that this does not appear to be permanent. Its temporary nature is one point of similarity with the RTC. I think we'll just have to wait and see what it looks like when it's all said and done.
I haven't had time to think about it enough to have an opinion. I'll probably wait until the details are out. I do have some questions though. One thing I don't have a feel for is how much of a discount will be taken when the government purchases these assets and what they'll be worth when the government sells them. Just how quickly will the plan restore these balance sheets to something approaching normal? For all the attention the other interventions have received, this one has the potential to really be The Big One.
Doesn't the fact that overseas markets are surging in response to this make you the least bit nervous about how this will be interpreted?
What will become of the $70 billion private liquidity fund? Will it even be tapped now that The Big One is on the horizon?
My working hypothesis is that the connectedness of the markets made this simply impossible to unravel piece-by-piece.
It's been a while since I've said this, but my sentiment right now is approximated most closely by Paul Krugman's latest column. Go. Read. Understand.
I haven't had time to think about it enough to have an opinion. I'll probably wait until the details are out. I do have some questions though. One thing I don't have a feel for is how much of a discount will be taken when the government purchases these assets and what they'll be worth when the government sells them. Just how quickly will the plan restore these balance sheets to something approaching normal? For all the attention the other interventions have received, this one has the potential to really be The Big One.
Doesn't the fact that overseas markets are surging in response to this make you the least bit nervous about how this will be interpreted?
What will become of the $70 billion private liquidity fund? Will it even be tapped now that The Big One is on the horizon?
My working hypothesis is that the connectedness of the markets made this simply impossible to unravel piece-by-piece.
It's been a while since I've said this, but my sentiment right now is approximated most closely by Paul Krugman's latest column. Go. Read. Understand.
One question I don't see anyone asking, is why didn't the treasury + fed + congress intervene earlier?
Well, actually I have heard people ask the question, but you're right about that question getting less attention than others. In some sense, it is water under the bridge. Being unable to go back in time, it is more important to focus on what can be done now. There will be plenty of time to address the "Why?" after the immediate danger has passed.
There are many reasons why they didn't act earlier--some worse than others. One of the more benign reasons is that the tools at their disposal are not designed to prevent the things that happened. Using monetary policy (i.e. interest rate policy) to try to prick a housing bubble is, to put it mildly, very imprecise.
Among the less benign reasons is that no one likes to be the one to say that the emperor has no clothes.