While one of my sons continued to deny my conceptualization of mortgage derivatives as a Ponzi Scheme, it seems that today the saying about something that looks like a duck and sounds like a duck is a duck is true! But, as in other matters, everything is so complex that our ignorance outweighs our knowledge.
I admit to being excited by what there is to learn from those more knowledgeable about investment banking. All sources of the media are inundating us their knowledge with opinions about what plans to remedy, or at least, establish some limits to the financial disaster affecting Wall Street and other banks.
What is clear is that no one really knows what to do with any confidence that a given plan will be effective. At the moment, I am struck by the importance of the taxpayers' being included in the actual equity of any firm that becomes subject to the terms of the bailout. The plan offered by Paulson does not meet this condition. Contrasted with 80% equity in IGA, his plan would only be profitable to the taxpayers IF someone was able to determine the right price to pay for the currently unmarketable paper.
James Galbraith innumerated eight principles that should be used to evaluate any plan that will be submitted for a congressional vote.
One of my favorite economists, Joseph Stiglitz, wrote a very detailed article explaining why the problems (four) will not be addressed by the plan developed by Paulson, even with the modifications by Congress (thus far). It scares me that someone like Stiglitz would have major problems with the plan that is being circulated by the public media.
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