This amuses me.
Our Coming Recession Posted by Kevin Drum on 10/03/08 at 2:02 PM -- on how government spending could help alleviate the recession.
Other links I've had lying around:
[Saturday, September 27, 2008] Greg Mankiw posted Distorting History, responding to something Obama said in the previous night's debate about the financial crisis.
[25 Sep 2008 03:48 pm] Megan McArdle posted about about Culhane's study on homelessness (using this as an analogy for the bailout).
The chronically homeless are not, as fable would have it, people who have had some hard luck. They are people who have repeatedly made bad decisions--mentally ill people who stop taking their medicine, drug addicts and drunks. Those who have merely had a spell of bad luck get in and out of the shelter system pretty quickly. The people on the street are people who can't stay in the shelter system because their behavior is so extreme.Smart people argue back in the comments.
For many people (including me) giving someone an apartment as a reward for refusing to deal with their drug addiction violates our inherent sense of fairness. And for many bleeding hearts (including me) simply giving someone an apartment without forcing them to get help for their underlying conditions violates our inherent sense of mercy. We don't want them to just have a roof over their heads; we want them to stop drinking themselves to death and/or hearing voices.
But people on the street are people who have refused help, or can't, for whatever dark psychological reason, use it. And they are people who cost a phenomenal amount of money when they get one of the many diseases inherent in sleeping on the street. How much money are we willing to pay to maintain our sense of fairness?
Matthew Yglesias posted [The Case for Mortgage Rewrites | Sep 25th, 2008 at 12:35 pm] about foreclosures.
In the long run, it'll still all work out. You have X number of people and Y number of houses. We're not all going to go live in tents while the houses all stand vacant. Instead, a bunch of people will lose homes they couldn't afford and a bunch of homes will lose a lot of value, and then people will buy cheaper houses. But this is one of these situations where the adage that in the long run we're all dead becomes relevant. That's a lot of inconvenient dislocation. And since we know the end state will involve more-or-less the same set of people living, in the aggregate, in more-or-less the same set of houses and making, in the aggregate, lower monthly mortgage payments we ought to be able to short-circuit some of the dislocation. Have people stay in the houses they're in right now. Adjust their monthly payments down to something they can afford, but that constitutes a better deal from the bank than what they'd be able to get by auctioning the property.
That's win-win for the homeowner and the bank, and provides stability to the neighbors. It would also serve, if done on a mass scale, the "price discovery" function that we need to tell which of our banks are insolvent and which are solvent, and thereby get the ones that turn out to be solvent to be liquid again. In the days of yore (ah, yore) this sort of negotiation could be done between a bank and a homeowner, but the complexities of modern-day finance have made it harder to do in a consensual basis. What's more, there's a collective action problem, as bank would rather have the other banks do the renegotiating and then reap the rewards without paying the price. What's needed is the heavy hand of the state, either in the form of a new agency or else in the form of bankruptcy judges to work this out.