By Arnold Kling
talks for ten minutes without saying much that I disagree with. Quite remarkable. Note particularly at the very end, when she suggests that her gut feeling is that the “dinosaurs” helped by Paulson’s bailout may not have been as critical to the economy as he assumed.
That is a big issue, in my opinion. And many Progressives (not all, as Warren illustrates) seem to want to side with Paulson, and especially with Ben Bernanke, in deciding to save the dinosaurs. I wish we could have a clean, nonideological way of answering that question.
What I propose is looking at whether Treasury and the Fed make a profit on their bailout moves. I think if they do make a profit, then this vindicates their view that this was a liquidity crisis, and government stepped in where markets were in a panic. If instead the Fed and Treasury take a loss, then this suggests to me that they were trying to cover up bad investments by the dinosaurs, and the case for the extraordinary intervention becomes much more problematic.