There is no libertarian solution to the crisis.
Houses are too expensive; supply exceeds demand; the mortgages held have been sold and the resulting mortgage asset has been used as collateral and leveraged.
You can either hope for a new housing boom or else try to slow the decline with some kind of market supports or simply stand back and let the prices correct: (1) nothing but prayer (2) Paulson plan (3) nothing.
I got nothing.
I stick with the contention that Barney Frank is first, over his head and second, a shill for Paulson bailout, committed to it and trying to tie on Christmas lights to provide political shelter.
I am also becoming slowly convinced that there actually is a crisis coming. It’s delayed now because of 1) market expectations of a massive government intervention and 2) a temporary SEC stay on shorts. There are subtle signs: new corporate bond issues that are stalling and consumer lending that is available only to FICO 700 and better. Hedge funds are beginning to unwind some positions. We’re sheltered temporarily from the Hedge fund fall out mainly because Hedge funds lock up investors money for months, or quarters, so a run on the Hedge funds is slow. The TED spread is ominous and extreme.
Further, I think the Paulson plan will pass and housing will continue to decline because no amount of money can slow down the natural market forces. It is, however, a hail mary pass, and you never know.
I think it will pass because (1) if Congress votes no, and the economy goes in the tank then it’s their collective fault; (2) if Congress votes yes, and the economy goes in the tank then it was Bush’s fault because he came up with the plan, and (3) if Congress votes yes, and the economy goes in the tank then Congressional member can claim success. Because a Yes vote is more appealing than a no, it’ll pass, because politicians are whores. They’ll tie on a bunch of meaningless crap, claim they’re sticking up for Joe Lunchbox and vote yes.
Meanwhile, the moral hazard players line up, starting with Detroit.. Who’s next, students with loans, families with credit cards. This could get very uglier.
So absent any confidence in the Hail Mary, I vote for nothing but expect the long pass.
On the bright side, the US has always been great on weathering recessions and a budget cut at the State level shakes out, at least for now, some of the waste.