Does Anyone Get this Crap?
I’ve been spazzing lately on trying to understand a little bit about the econoclysm. As I mentioned, I like Krugman’s blog. Howard pointed me to Baseline Scenario, which is nice. I do enjoy the Planet Money podcast and, of course, the periodic This American Life segments by the Planet Money crew. I even tried some papers at the Heritage Foundation to understand the right side of things (didn’t help a lot). I think I have more questions than when I started. Here’s some:
- If we nationalize the really big banks, then who’s left to sell them to when we’re done with them?
- If we nationalize the big banks, how does that get done operationally and is it even possible from a manpower/management perspective?
- How are tax cuts supposed to help stimulate the economy when a) everyone (including corporations) will probably just save the money and not spend it and b) the problem is one of low demand, not low supply?
- How is “mark to market” even an issue? Sure, I’d love to pretend my house was worth a lot more than it is, but it just doesn’t work that way.
- How is restraining spending supposed to help? Doesn’t that just fuel the demand problem?
- Some say we shouldn’t boost demand, we need to lower supply, but doesn’t that just mean lots of companies go under and we have huge unemployment for a long, long time?
I’m sure I’ll have more later.
By Howard on March 13th, 2009 at 6:43 pm
I suspect you’d love to pretend your house was worth less so your taxes were less. The value of an asset is just a paper value until you sell it. The problem is estimating the value of these derivatives when it’s not clear who will default on their mortgages (and I guess how badly) and which fraction of that you have. My conclusion after having had to take an accounting course in college, is that it’s easy until you deal with time (much like physics).
By Seth on March 13th, 2009 at 8:36 pm
Your taxes point is well taken (I’m currently contemplating selling my house which is why I would like it to be worth more). My understanding is that the value of an asset is whatever the market says it is (regardless of the underlying mortgages), which for the derivatives in question is very low. If I’m calculating my net worth, I use whatever the market value of my house is, not what I hope it will be a year from now.