House of Cards, part 2

Back in November last year I had the first House of Cards post, which at the time seemed a bit alarmist, but at least plausible to me.

The past week (and the weeks to come) appear to be going way beyond what I would have thought possible, but I must assume that things are very close to coming completely apart in the financial world.

A story from the NY Times, “Fed and Treasury Offer to Work with Congress on Bailout Plan” by Edmund L. Andrews  indicates that a initiative is in the works to set up a government organization to buy up bad mortgages…

The head of the Treasury and the Federal Reserve began discussions on Thursday with Congressional leaders on what could become the biggest bailout in United States history.

if (acm.rc) acm.rc.write(); While details remain to be worked out, the plan is likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions.

While I don’t think it’s fair to simply call this a failure of the ‘free market’ (since Fannie/Freddie were deeply involved in making mortgage money available and loosened standards at governmental request), it certainly indicates that many things have gone very wrong.  When the government becomes the only buyer left, the market has collapsed.

In the end, it seems possible that given a long-enough time horizon (presumably the government can hold onto these mortgages for a real long time), this may actually be a good deal for the taxpayer (or perhaps equally likely it could turn out miserably).  But how can anyone know today?

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