Insanity is . . . .
The big bailout of 2008 proceeds apace and daughter Cat has sent Wonks Anonymous a scary piece from the NY Times. It would appear that the Treasury is in a rush to get this show on the road and the bailout czar, Mr. Kashkari, is soliciting bids from investment banks and other financial firms. Here is what they will do per the Deal Book blog:
The man in charge, Kashkari has been described as a "financial engineer". He worked as a rocket scientist for NASA until he got his MBA about six years ago. After that he worked for Treasury Secretary Paulson at Goldman Sachs, doubtless creating, marketing and modeling the risks all sorts of wonderful debt backed securities.
In other words we are going to depend on one of the finance wizards, who managed not to notice that all of these securities weren't sound in the first place, to determine the current real value of the securities. And he has a plan. Over the past decade economic theory has been creating many interesting auction models which, according to economic theory, will persuade sellers to state the true value of the assets that they are selling.
Models of this sort were applied during California's experiment in energy deregulation in 2000. They were highly successful, if by successful you mean generating huge profits for ENRON and other energy suppliers while depleting the entire State reserve fund in a matter of one month.
Wonks Anonymous must admit that he is not a very mathematical economist and this theory is beyond his ken. He would, however, feel more comfortable if the whole bailout were in the hands of some nasty old guys and gals who were in the business of buying and liquidating bankrupt companies. He feels that these people would be able to design and implement a much more reliable mechanism to evaluate assets and assure that the taxpayers were not robbed blind.
In case you don't remember the full quote: Insanity is doing the same thing over and over again and expecting different results. Thanks for the tip Cat.
Administration officials plan to outsource almost the entire project, which will largely rely on “reverse auctions” in which the government accepts bids from financial institutions that want to sell their troubled assets.
The Treasury said it intended to hire one company as a “financial agent” to set up the basic system, which would include running the auctions, keeping track of the various portfolios and overseeing all the operational issues.
The Treasury said it intended to hire one company as a “financial agent” to set up the basic system, which would include running the auctions, keeping track of the various portfolios and overseeing all the operational issues.
The man in charge, Kashkari has been described as a "financial engineer". He worked as a rocket scientist for NASA until he got his MBA about six years ago. After that he worked for Treasury Secretary Paulson at Goldman Sachs, doubtless creating, marketing and modeling the risks all sorts of wonderful debt backed securities.
In other words we are going to depend on one of the finance wizards, who managed not to notice that all of these securities weren't sound in the first place, to determine the current real value of the securities. And he has a plan. Over the past decade economic theory has been creating many interesting auction models which, according to economic theory, will persuade sellers to state the true value of the assets that they are selling.
Models of this sort were applied during California's experiment in energy deregulation in 2000. They were highly successful, if by successful you mean generating huge profits for ENRON and other energy suppliers while depleting the entire State reserve fund in a matter of one month.
Wonks Anonymous must admit that he is not a very mathematical economist and this theory is beyond his ken. He would, however, feel more comfortable if the whole bailout were in the hands of some nasty old guys and gals who were in the business of buying and liquidating bankrupt companies. He feels that these people would be able to design and implement a much more reliable mechanism to evaluate assets and assure that the taxpayers were not robbed blind.
In case you don't remember the full quote: Insanity is doing the same thing over and over again and expecting different results. Thanks for the tip Cat.
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