BailoutSleuth.com is blogging the bailout. I’m sure this is a noble and necessary endeavor, but let me pick one statement from their website, take it out of context and then go on a tangent:
BailoutSleuth believes that transparency is vital to the success of the taxpayer-funded bailout program.
I totally disagree. What fueled the CDS market? What fueled the mortgage-backed securities market? Why did the corporate paper market work? OPAQUENESS! The market is driven 90% by perception: hunches, rumors, intuition. Without calculated risk the markets wouldn’t work. The fact that so many people got rich over the last decade with these instruments is because no one had any idea what was really going on! In the end it was a miserable failure, but it sure was great while it was good, right?
If we want to get out of this mess quickly, I think a certain amount of mystery and opacity is crucial. As I’ve argued before, all that really needs to happen to get the economy to recover is investors need to be led to believe that it will in fact recover, and we’ll get the snowball rolling again.
Ha! Terrible analogy. But probably appropriate.