Bush made his speech this evening (see here). He offered his version of an economic catastrophe. He tried to justify his plan to buy up a bunch of mortgage securities that nobody but the government is willing to buy. He suggested that if the government held these securities long enough it could turn a profit. If that is the case, why doesn’t anyone else want to buy these securities.
The fact is that these securities are worth only whatever the value of their collateral might be. The fastest way to get liquidity back into the financial markets is to take the lost. Let Fannie Mae and Freddie Mac dispose of their assets for whatever they are worth. That is, privatize the lending market.
After this debacle, people will not want to invest money with a government sponsored agency. However, they might be willing to invest money with investment houses regulated by the government. So let’s get government out of the investment business and restore it to its proper regulatory role.
Let’s bite the bullet. Whether we like it or not, we have a catastrophe. Like it or not, we built so many houses that the bottom has dropped out of the market. There is no way to recover that value. A bailout will just involve more people, the taxpayers, in Fannie Mae’s and Freddie Mac’s losses.
We need to deal with the problem, not the symptom. We need to get government out of the investment business. We do not need to bail out the politicians who manufactured this mess. We do not need to bail out their friends. We have no good reason to trust these fools with more of our money. It is too likely that they will just make matters worse.