Monday, April 06, 2009

Geithner's Big Scam

is actually not a bug, but a feature, according to Joe Weisenthal:

Look, the government's actions all revolve around one overriding strategy: Moving more and more of our private debt to the public ledger. That's it! There's nothing more to it. The bet is that the public balance sheet can withstand a lot more leverage before it busts, and that a delevered private sector can return to health.

Thus all these bailout efforts are meant to be gamed. If there were no gaming going on, the schemes wouldn't be living up to their full potential, because that would represent debt staying in the private sector.

Of course this strategy has drawbacks. For one thing, it's totally dishonest, because it's not being sold this way. It also is rewarding failure, maintaining a status quo that's proven to be unsustainable. And what's more, if Washington is wrong, and the public balance sheet can't withstand more leverage, the effects could be catastrophic.

But really, for the bailouts to work, the private sector -- and, yes that includes homeowners who are figuring out ways to scam the mortgage mods -- needs to "game" the system as much as possible.

After the big transfer is done, we just need to default on our Social Security payments and cut military spending and voila, problem solved.

I'm still thinking it's a big bug. Photo link here.

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