http://pajamasmedia.com/blog/an-alternative-to-the-wall-street-bailout/
In contrast, the bailout proposal takes the Treasury into completely uncharted
territory. The Treasury has no expertise in evaluating mortgage credit risk.
This is a very complex mathematical problem. I know, because I used to do it
for a living.
Ben Bernanke and Henry Paulson are asking Congress for a $700 billion stake to
enter this business at a time of unprecedented difficulty in predicting home
prices. If they were taking their plan to a venture capital firm to seek
funding, they would be laughed out of the office. Their proposal is sketchy,
with no financial projections included. Their qualifications for running the
business are unimpressive-neither Bernanke nor Paulson has a background in
mortgage default modeling. The business is sure to be encumbered with all sorts
of political mandates and requirements from Congress, imposed by the same
Congressional leaders who encouraged Freddie Mac and Fannie Mae to plunge into
subprime mortgages.
The risks of enacting the plan are far worse than the risks of doing nothing.
Arnold Kling is an economist who worked at the Federal Reserve Board in the
1980s and at Freddie Mac in the 1980s and 1990s
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