This would of course have dampened the housing bubble, since the pool of buyers would have been a lot smaller. Which means some people (actually, myself included) would not have been able to make the kinds of money they did from buying/selling houses over the past eight or so years at the right times. But unless I’m wrong, which I may be, it also would have prevented this crisis.

I’d also like to know why Paulson thinks it’s a better idea for taxpayers to buy up all these lousy mortgage loans as opposed to (as was suggested in a WSJ op-ed a few days ago, I forget by whom) address the problem by injecting banks with the same amount of capital and taking part-ownership of them. This would serve the function of injecting a lot of credit into the economy, and as a taxpayer, I’d rather that my 700 billion dollars bought a chunk of the banking industry than of the crappy mortgage industry.

Economics is not my strong suit, but from what I’ve been able to gather from the fallout coverage, government, as usual, played a large role in screwing things up (surprise!). I’ll leave the details and finer points to posters with facts at the ready and go pick up a copy of Thomas Sowell’s “Basic Economics” like I’ve been meaning to for a few years now. No time like the present.

Anyway, I think I have a new career strategy…I’ll send out letters to corporations and say, “I’ll run your company into the ground for half of what you’re paying your current CEO.”

Cut-rate mismanagement–the new growth industry of the 21st century.

Scott

Actually, its a very clever way to hide social engineering schemes which would have never seen the light of day if they had been induced via a tax change.

I did hear that since the government is taking on assets in return for an infusion of funds it might not be so costly in the long run. Of course the long run could be several years.

But seriously, it’s very hard to come up with legislation that could fairly tie compensation to long-term performance (even deferred compensation). If you could think of a formula that would work without burdening an executive with decisions made after his/her tenure and for which he/she was not responsible I think you would have a lot of attention about now.

Of course, what’s good for the goose is good for the gander. How would we hold politicians accountable for the Fannie Mae appointments, for example? It seems almost Kafkaesque to have Chris Dodd presiding over corporate reform legislation.

Wrt corporate governance, even without any financial crisis we face quarter-by-quarter management in public companies. All of us know that the shareholders’ interests are secondary to management’s interests (I see it every day at work). Hopefully the sympathy for taxpayers won’t overwhelm the need to look after shareholders long-term – and I’m not talking about compensation fpr their current losses. but rather shareholder rights reform.

The bad news is that a significant moral hazard has arisen in the markets as a result of the control of wealth by intermediaries. CEO’s (and traders and fund managers) are rewarded by each other, and on short term measures. The true owners, in most cases, are individuals (often through funds) who have longer term interests at heart.

Does anyone believe that owners would reward failed executives with tens of millions of dollars?

Wall Street has become corrupt as those active “for” the owners really act for themselves.