Bail Out Blues: Flue Or Pandemic?

There are way too many headlines that take the form of Such-and-Such Blues. It tasks me. Is it a coincidence that the arrival of John McCain in Washington leads to a hiatus on the work on the financial sector. It was reported that he raised questions about the plan thus far. Questions? Based on what? Do you actually think someone "knows" what the best answer is, short of not having done it in the first place?

http://www.bloomberg.com/apps/news?pid=20601103&sid=aNKGD.bJwmRA&refer=news

David I. Levine a professor of economics at University of California-Berkeley, says the current plan being discussed has the wrong structure. ``The structure is designed for the Treasury to be the first line of defense,'' said Levine, who studies organizations and incentives. ``A whole lot of people made money supposedly by putting their capital at risk, and those are supposed to be the first line of defense, that's how capitalism works.'' Jeffrey Miron, a Harvard University professor and self- described libertarian, objects to what he says is `` a stunningly broad, aggressive government intervention without appropriate precedents.'' He advocates allowing the normal process of business failure and bankruptcy to run its course. ``It's just nothing like the calamity the administration is making it out to be,'' he said.

The problem is that it is something new within the past 20 years or so. Derivatives, which have bedeviled banks and pension funds since the 1990's, may flow unchecked through the system like a cancer. Theory has not kept up with Reality. It lags behind. Reality is hustlers; Theory is academics.
How many of the economists have a working grasp of the complex system we call today's Markets? Not bloody many. I mean, I told my daughter in August, 2007 that the Dow would decline to 10,500. That was over a year ago. I think I certainly had a better grasp than 75% of the economists who signed the Letter to America that Senator Shelby was waving around on TV last night.

The economist cited above does not have any understanding of what is involved. He has a rudimentary and jejune scenario of free markets in his head when he talks about letting it run its course. The classical mental simulation is based on individual entities in a free markets, some succeeding, some falling by the wayside. This does not incorporate within itself any notion of the cancerous spread of a pandemic of derivative disease from one entity to all others.

Unfortunately, like so many other things today, the Financial Sector problems resemble HIV/AIDS. Wall Street resembles the East Village in the 1980's where a number of prominent members of the community are ill, many other fear they too are ill, and the medical knowledge to treat the illness does not exist. The logic of the morttality of HIV/AIDS differs from the mortality logic of Predator & Prey in a stable population, yet economists like Prof. Levine seem to think not. There is a half-baked notion of zero-sum economics floating around our heads. This model does not even begin to address the complexity of a game where even those people who choose not to play may loose everything, including their lives. What is clear is: whatever the treatment, it will roughly cost the same...or more...and there is no sugar daddy, Warren Buffet excepted, who is going to pay for it.

John McCain knows nothing about economics. He cannot learn enough in 1 or 2 weeks to come up with a working knowledge, nor a hazy intuition. I do not know about Obama, but I do not see him sticking his toxic two cents in like McCain "I think of the country first" does.
What do I think? I thought the proposal the people on the Hill worked out seemed plausible. Will it work? Maybe, maybe not.
However, this brings us to a time of choice, a time when you can no longer let an issue be a political issue, subject to endless debate. We must choose, and then live with the consequences of our choice. This is not Climate Change Game Scenario where we may prattle on forever.