Tuesday, September 30, 2008

The mote in your own eye 

... it is largely false that taxpayers have not profited from the sub-prime craziness that has matured into a crisis. The vast majority of Americans own their homes, and all of us have seen our values go up as a result of precisely the lax lending standards that stoked the market. Those in California or Connecticut who sold their houses in the last couple of years have hundreds of thousands of dollars in windfall profits that are precisely due to the problems now afflicting Wall Street. Indeed, everybody who received dividends from real estate funds or high-yielding bond accounts juiced with mortgage-backed securities has reaped profits.

There�s more. Almost 100 percent of income tax is paid by the top earning 50 percent of the American population. These are the folks most likely to buy stocks, have 401k and IRA accounts, and own other sorts of financial assets in addition to their houses. The housing bubble and the financial shenanigans associated with financing real estate was the single most important support for financial markets after the technology bubble burst in 2000. In other words, the net worth of all Americans who have stock and bond-based assets was supported by exactly the economic dynamics that have produced the mess that we�statistically the very same people�are now going to pay to unwind in what I hope is an orderly fashion. My friends, most of us did profit from the sub-prime debacle.

Henry Paulson�s $700 billion plan may be poorly conceived. The plan may be corruptly executed. It�s very hard to see how any government-run bailout can avoid the sort of cronyism and log-rolling and set-asides that characterize government expenditures in general. Think bridge-to-nowhere on steroids. And who knows, it may not work.

So, when it comes to the details, there is and will be plenty to criticize. We need to pay very close attention. The Paulson plan, no matter what its final form, will be huge. And because it�s huge, it will be fatefully consequential for our future economic and political system. We need to get this right, or at least as right as possible. That�s all the more reason to focus on the details rather than grandstanding about Wall Street greed and bellyaching about the supposed unfairness of a government bailout.
h/t: Tim. Emphasis mine.