Sunday, December 16, 2007

Cash Bailout

This is pretty stunning.

STEPHANOPOULOS: The political world is now looking at the immediate pain. And Senator Clinton looks -- has called for a freeze on foreclosures. Senator Edwards called for a rescue fund to be set up by the government for people who are facing these kind of foreclosures.

What do you think about those ideas?

GREENSPAN: Well, I think it's important to recognize that there are a very large number of people who are in very major stress and having great difficulty in paying off their mortgages and even when they've tried exceptionally hard.

But when you think of how you come to grips with this, it's important to help those people outside -- without affecting the mortgage rates and without affecting the structure of markets. Cash is available and we should use that in larger amounts, as is
necessary, to solve the problems of the stress of this...

STEPHANOPOULOS: Cash from the government?

GREENSPAN: Cash from the government, yes. In other words, if you're going to do that, it's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely.

STEPHANOPOULOS: But by infusing cash, it sounds like you agree, then, with former Treasury secretary Larry Summers, who says that, right now, given this crisis, there has to be a bias toward activism.

GREENSPAN: It depends what you mean by activism. If you mean doing something that works, absolutely. If you mean doing something just for the sake of perceptions, that's very costly.

STEPHANOPOULOS: And you think that infusing cash, right now, would work?

GREENSPAN: I'm saying I don't know if it would work, but it would certainly help people -- it would help their incomes; it would help their personal state, without affecting the structure of the way markets are behaving and the way adjustment process is going on.

It's very critical that this thing reach a selling climax -- if I may put it in other words, exhaust itself. It's only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.

I don't have any idea what to make of this. I'm a squishy do-gooder liberal and I have no desire to throw huge amounts of cash at this problem. The idea that doing so wouldn't impact markets is absurd. And while it sounds like Uncle Alan just wants to help out poor Mrs. Jones, this is basically just a complete bailout of Big Shitpile.