Today's best post on the bailout...

Chris,

The biggest problem with trying to make an analogy like this is that any analogy, by necessity, oversimplifies certain aspects of the situation. No analogy is perfect. As a consequence, it's tempting to try to extend it.

Your extension of the analogy raises the issue of whether we can afford it. Fair enough. But where I think the analogy fails is that you are too cavalier about the presence of insurance absolving us of any need to worry about putting the fire out. There is no insurance policy against a systemic failure of the financial system. And while the probability of such a failure is still, I think, rather small, I am equally convinced that it is nonzero.

The purpose of any bailout package should be to head off the very possibility of systemic failure and allow for an orderly unwinding of highly leveraged and insolvent firms. If that was done right, I don't think it would cost the taxpayer anywhere near the $700 billion price tag that has been tossed around. I certainly would not favor anything more expansive than was necessary.

I will probably elaborate further in a future post.

UPDATE: Ok, I may not elaborate on it in tonight's post. I just made a post on the bailout package as a whole in anticipation of tomorrow's vote in the House. That's it for tonight.