Daffyd ab Hugh at Big Lizards has an insanely long but comprehensive and comprehensible post on the nature of the current financial crisis and the Paulson bailout plan. (H/T Ace) As somebody who was familiar with a good deal of this stuff before it hit the front pages, I can vouch for the fact that this is a smart, clear, insightful summary. My main question about it is that Daffyd seems to assume that Treasury will be buying MBS at the low, distressed market prices now available, and I’m not sure we have assurances that is the case.
By the way, I was listening to the horrible Mets game rather than watching President Bush’s speech tonight, but on paper at least the speech was a fairly clear layman’s explanation of how the crisis developed. I know some conservatives wanted a more partisan finger-pointing speech, but Bush isn’t running for office, he’s trying to hold together fragile bipartisan support for a bill nobody likes. And he does seem to give credence to Daffyd’s reading of how the bailout will operate:
[A]s markets have lost confidence in mortgage-backed securities, their prices have dropped sharply. Yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages. The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal. And when that happens, money will flow back to the Treasury as these assets are sold. And we expect that much, if not all, of the tax dollars we invest will be paid back.