Ilya Somin: Continuity We Shouldn’t Believe In - Moral Hazard and the Geithner Bailout Plan

Posted by Kendall Harmon

Ironically, the moral hazard created by the Geithner plan is similar to the incentivizing of risky mortgage investments by the government's backing of Fannie Mae and Freddie Mac, which played a major role in causing the financial crisis in the first place, as economists Peter Wallison and Charles Calomiris describe in this paper. Wallison deserves some credit for warning about this danger back in 2005.

Both parties deserve blame for the policy of federal backing for dubious mortgages and investments. Certainly, President Bush didn't help matters when he, in his own words, "use[d] the mighty muscle of the federal government" to promote the issuing of risky mortgages.

Barack Obama, however, promised to break with the failed policies of the past, and often criticizes those who he claims advocate "the same failed ideas that got us into this mess in the first place." Ironically, he has now embraced some of the worst of those ideas himself.

Read it all and follow the links as well.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted April 1, 2009 at 7:37 am

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The URL for this article is http://www.kendallharmon.net/t19/index.php/t19/article/21490/



1. Jeffersonian wrote:

Ironically, the moral hazard created by the Geithner plan is similar to the incentivizing of risky mortgage investments by the government’s backing of Fannie Mae and Freddie Mac, which played a major role in causing the financial crisis in the first place, as economists Peter Wallison and Charles Calomiris describe in this paper. Wallison deserves some credit for warning about this danger back in 2005.

Actually, I think Wallison warned about precisely what we are suffering now back in 1999.  Now President Oprompta is doubling down on the moral hazard.  Insane.

TEC delenda est!

April 1, 11:16 am | [comment link]
2. Dilbertnomore wrote:

Something comes to mind about taking a trip in a basket to an overly warm place. Good thing we are all now basking in the ‘hopenchange’ thingy.

April 1, 12:23 pm | [comment link]


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