Senator Gregg: "I don't see any shoes out there that meet the standards of Freddie Mac, Fannie Mae or AIG.

Senator Dodd: "I agree with that."

NPR: "Meaning there won't be another huge huge bailout of this kind? You don't see one on the horizon?

Gregg: "I don't see any entities out there that appear to be in trouble that meet this type of standard--that they would melt down the entire system if they went under."

Dodd: "Some banks. Some banks, some regional banks, but nothing of the size of AIG, Lehman Brothers or Merrill Lynch."

I tried to explain to one of my colleagues at lunch how the average guy on the street has no understanding of why some companies are getting bailed out but not other companies, it all seems so arbitrary if you don't understand the financial sector.  He didn't get it.

I saw a quote from Harry Reid saying something to the effect that he doesn't know what Congress should do about this mess because it is unprecedented.  UHmmm...

Too many people comparing this to the great depression for my taste.

Frankly, I have no real idea what an economic crash means for the country, I was raised in the 90s and still in school when the bubble burst.

I wish people would shut up about "moral hazard". Yes, bridging AIG through its current crisis is not something you want to do; and yes, it would be better if the market solved its own problem. But even a cursory analysts of the serpentine connections between AIG and capital markets tells you that the latter just can't happen, so you have to hold your nose, be an adult, and live with the former.

moon-landing-2Moral hazard, while real sometimes and in some places, is vastly overrated as an effect. Granted, it's seductive in the same way that risk homeostasis is -- the notion that, for example, people drive faster and take more risks because they have seatbelts -- but like risk homeostasis, moral hazard is vastly over-diagnosed. People at major financial services outfits don't project five years into the future and say, "Lever up, boys and girls. We'll either make a lot of money now, or be bailed out later." Real people in real markets don't think that way. Matter of fact, if anything, they're short-sighted in that regard to a fault.

Further, imagining that people load up with "end of the world" liabilities in an effort to be anointed with "too big to fail" status is muddled non-thinking from run-amok conspiracy theorists. They would be better off sticking to, you know, perhaps denying the Apollo moon landings. Because the idea that a GM can now credibly post-AIG make the case that capital markets will blow up if we don't assist it too is silly -- and suggesting that auto companies (just to pick an example) will now plaster themselves with leverage bombs to make their own "We're dangerous too!!" case stronger is sillier still.

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I don't think any of the relevant and knowledgeable congressional Rs truly believe this.  The folks on Wall Street will differ on the actual causes and remedies, but I doubt that any of them would say this is simply a Fannie/Freddie and "greed" problem.

But, what option do the Rs have?  I can't imagine that they'll acknowledge their core philosophy of limiting regulation has failed.  And, yet it is indisputable that the unregulated and lightly regulated instruments have been the problem.  Traditional FDIC banking (and even the GSEs (especially before 06, when they starting trying to soak up some of the fallout from non-GSE products blowing up)) have been regulated.  As a result they have been (by orders of magnitude) the most prudent folks.  

OK, Ginnie Mae and Freddie Mac were already quasi-governmental corporations, and the consequences of letting them fail would have been calamitous. But saving them has led in short order to the Federal government's intervening to save AIG, a garden-variety insurance company, albeit a large one.

The cost of the AIG bailout, they are saying, is 85 billion dollars. Does anyone have a handle on the potential cost of the much larger, and seemingly more open-ended, Ginnie Mae and Freddie Mac rescues?

I'll grant that there have been government bailouts of private (i.e., non-government) businesses in the past, and not all of them have been disastrous. (Saving Lee Iacocca's Chrysler Corp., almost 30 years ago -- can it really be that long? -- comes to mind as an example.) So maybe it's a good thing that the Executive branch should have this sort of power. But I wonder, does the Constitution explicitly grant such power? (I doubt it.)

Is there any Constitutional limit whatever on how much money the Executive can unilaterally dole out to save a private company? They used to say that Congress had "the power of the purse," but this Administration is acting like it has the keys to the vault.