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August 22, 2008


greg nowell

It isn't that radical to note that socialization of losses is sometimes necessary, Dick! Lenin criticized Bismarck's Germany for doing the same thing with failing railroads. In any case failed debt gets socialized one way or another: either through an increased tax burden or through unemployment and deflation. The measures you recommend are sane in the sense that they will keep a bad situation bad, rather than letting it deteriorate to catastrophic.

The people who think that such bailouts deprive the markets of the discipline of "moral hazard" miss the point. We could create a good deal of moral hazard simply by putting imprudent banking wheelers and dealers in jail. No reason to have a Great Depression just because they wrote some bad paper.

Dick Lepre


I was more making the comment that things have gotten radical if I am suggesting socialization of mortgage debt but clearly this is the only solution.

The "moral hazard" issue is, for me, a red herring. Banks, Wall Street firms, mortgage companies, and investors have been savaged. They are hardly getting a free ride. The only bone I threw was potentially to FNMA shareholders if they really have some net worth.

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