The speech itself was strong and well-delivered, but its forensic qualities notwithstanding, I’m not sold on the bailout plan. As Todd Zywicki points out, if the mortgage-backed securities are undervalued and taxpayers are going to make money at the end of any bailout procedure, then it stands to reason that we should have more private investors buying MBSs. And yet, we aren’t. Warren Buffett is the outstanding exception, but Warren Buffett is just one guy. There should be more. Why are they holding back?
And contrary to the President’s statements, the markets are working. They are reacting negatively to the fact that MBSs are a parchment guarantee and nothing more, but they are working. Once again: Failure is inevitable in a market economy and we learn from failure. The capitalist system is the best way around to learn from failure and it is teaching us now. On this score, the market is working fine. Again, that doesn’t mean that the economy is going gangbusters, but merely because the economy is not going gangbusters doesn’t mean that the market isn’t working.