[Editors Note]: What follows is the last contribution I received from my blogging partner The Rigorist from back last September. Perfectionist that he is, he requested that it not be published until he had worked on it some more. Since he has been away from the blog for some time now, and his comments have become timely once again in light of the impending Geithner TARP part 2, I am publishing this article now. Rigorist, if you’re out there, accept my apologies for moving forward without you. To my readers, feel free to comment but understand that I can’t speak for the author.
From the desk of The Rigorist
Since my last post, I have been trying to find a way to address the “Bailout” illustratively. Searching past the wailing and the warnings of impending doom, I have been reading other people’s attempts to do the same thing, to describe the elements and the mechanics and the issues to the deliberately uninformed. It is the deliberately uninformed who present the challenge. Their attempts fail and I shall do no better.
To those that embrace Capitalism, and understand it as a human right as fundamental as speech and faith, explanations are easy. The existence and nature of such things as money, contract, and insurance do not fundamentally contradict the rest of their view of the world. The complexity of the mechanics of Fannie Mae and Freddie Mac can be made simple. The issues can be argued from one side or the other.
But to those who find Capitalism hard to accept because it is predatory, or unfair, these things must not be understood. Their worldview doesn’t permit them.
It was a friend of mine, David, who showed me a way.
What the government is buying in the “Bailout” — brace yourself — is other people’s good intentions. I am terribly serious, and this description is terrifyingly accurate. President Bush, Secretary Paulson, Federal Reserve Chairman Bernanke, and, hopefully, minorities in both houses of Congress are proposing to pay $700 billion for other people’s good intentions in order to mitigate a forthcoming recession.
A good intention is an element a liberal can understand whereas contract or loan or debt give them problems because the creditor is being uncharitable when demanding payment. Usually, there is no trouble in buying someone’s good intention. If someone has the good intention to give me $120 (thousand) in a year or two, any problem I have with buying that good intention for, say, $100 (thousand) is solved by giving me partial ownership in something I think is valuable.
What has happened is Fannie Mae has bought all whole bunch of other people’s good intentions, who unfortunately are having trouble. What has made this a crisis is that Fannie Mae screwed up in evaluating the value of the thing they got part ownership of. She’s a trusting soul, full of hope
What Freddie Mac does for a living is take bets that people like Fannie Mae will screw up just like Fannie Mae did. Yes, Freddie Mac is a professional gambler. He’s not one of those “gaming” weenies that put up casinos in Las Vegas, either. Freddie Mac is hard-core.
Well, Freddie Mac hasn’t been hard-core enough. He now finds himself in possession of a whole lot of good intentions and partial ownership in things that aren’t particularly valuable.
So, what is being proposed is that Uncle Sam ( the federal government ), who is a close relative of Freddie Mac, will buy — paying full price no less — all those good intentions — of people who can’t make good on them — and partial ownerships — of things that really aren’t very valuable.
AIG is a gambler just like Freddie Mac, but the good intentions he got are actually pretty good, and the partial ownerships are in things that are valuable. He’s just looking for a loan until payday, but nobody is in a hurry to loan a gambler money especially when he isn’t family.
People think Uncle Sam can afford this because he’s got a money printing press. He’s not a counterfeiter, but he might as well be for the effect this deal will have. It’s not all that bad, really. He does this sort of thing, running the money printing press into the night, all the time. People get grumpy about inflation, and feel all recessed — that’s a recession joke, it’s OK to smile — but they get over it.
This is a good place for a break. Can you non-Capitalists get the what and the how, understand the elements and mechanics, from this? Can any Capitalist point out where I have erred?