By Arnold Kling
The Wall Street Journal has the prepared testimony of Ben Bernanke and Henry Paulson. Neither one spells out exactly what sorts of financial institutions are in difficulty and how that difficulty translates into problems elsewhere in the economy. Neither prepared text answers the basic question of whether the goal is to buy undervalued assets cheap or to make cheap assets dear.
However, the Journal interprets Bernanke’s oral remarks as saying that the goal is to make cheap assets dear. If this is the correct interpretation, then my opposition to the bailout, which was 8 on a scale of 1 to 10, is now 11.
Tim Carney explains what AIG did for a living, namely credit default swaps. Pointer from Megan McArdle, who is willing to give more credence than I am to the view that the financial situation is so dire that we need drastic measures. Someone else for me to debate, perhaps, although we would have to preface a lot of our remarks by saying, “I don’t know for sure, but based on what I am hearing…”
I’m reminded of how Ken Rogoff used to complain about how perverse it was for relatively poor countries to be transferring capital to the U.S. Isn’t it somewhat perverse for average taxpayers to be transferring capital to financial institutions?
Steve Landsburg has similar thoughts.