Are Bernanke-Paulson Puts Net Wealth?

Are Bernanke-Paulson Puts Net Wealth?

Somebody really should write a paper with that title next month.

Barry Eichengreen volunteers me...

Brad DeLong http://www.j-bradford-delong.net http://delong.typepad.com brad.delong@gmail.com 925 708 0467

"Economists set themselves too easy, too useless a task when in
tempestuous seasons they say only that when the storm is long-past the
sea will be flat again"

Comments

[christofay]

Go ask the poor poor bridge playing CEO of Bear Stearns, he got out with $60 mil but lost out on the $900 mil of paper stock wealth. So in his case, yes, the Bernanke-Pallson put is money in the bank.

[christofay]

You are going to get Alan angry if you call his puts the Bernanke/Pallson Put.

[Ken Houghton]

Net Wealth, or net redistribution of wealth, given that they are "tax-cost carryforwards" that are, er, highly unlikely to fall in the same proportion as they are disbursed?

[Neal]

The real Bernanke/Paulsen put is the "get out of jail free" card that comes with "the too big to fail" enterprise.

Just a part of the responsibility-free zone that America became over the past few years.

[christofay]

Neal, no it's not "get out of jail free" as our Wall Street betters have no chance of going to jail. There is a danger they will lose their bonuses based on the black boxes use of accelerated profit recognition via mark to market booking.

In the bursting of Greenspan bubble 1 Martha Stewart went to jail and that was about it, a few low level analysts got in trouble, Wall Street firms paid out in fines some of the stock holders assets, that was about it.

[christofay]

Is Greenspan's PhD thesis filed in the vault next to Bush's military service records?

[christofay]

First Henry Gonzalez was a man. When he left the village the population of males there dropped significantly.

Quoting, "Dr. Greenspan's Amazing Invisible Thesis"

http://online.barrons.com/article/SB120675340444773623.html

Auerbach, a veteran Fed basher, portrays Greenspan as a real-life Professor Marvel -- who, through double-talk or "garblement," transformed himself into a mighty economic wizard à la Oz. Auerbach strongly implies that Greenspan's 1977 Ph.D. from New York University was obtained in a few months with little more rigor than a matchbook-cover art degree and that Greenspan has kept his Ph.D. thesis secret in order to protect his vaunted academic reputation.

Although Auerbach's evidence is circumstantial, it certainly is provocative. For years, NYU told the public that, at Greenspan's request, the thesis was locked away from public view in a vault at its Bobst Library....

Exactly how Greenspan wrapped up his NYU studies in such a short period is unclear, but it appears that his thesis wasn't especially time-consuming. Auerbach cites an earlier biography that says that Greenspan submitted -- instead of a normal Ph.D. dissertation -- some papers totaling 176 pages that he entitled Papers on Economic Theory and Policy. Among them was at least one he'd written earlier....

Auerbach contends in his book that Greenspan's invisible Ph.D. thesis is symbolic of a career marked by prevarication, cover-ups and a general aversion to making the Fed more publicly accountable. He calls on Congress to "bring the Fed into the Democracy" because "unelected Fed decision makers should not decide what the public should know about how they are running the central bank."

Unlike Greenspan, Auerbach writes: "No one should be given the immense powers bestowed on the Board of Governors and the FOMC without having his or her credentials publicly examined."

If only Greenspan's thesis were available to examine.

Unquote.

Prof Delong, have you read Greenspan's thesis and can you comment on the quality of it? It sounds like some mid-career wallpapering to beautify the house. I would say if Greenspan's thesis is of such poor quality we should re-examine the role of the Federal Reserve, review the mistakes of the last two decades, and re-evaluate son of Greenspan Bernanke's fitness for his position, all before determining where and how large the bail outs should be.

[Neal]

Chrstofay--since when are real qualifications and credentials necessary--especially when times are good?

It's what you are willing to do and say that matter.

As our VP would say, "So?".

[Harold]

Potemkin economist with Potemkin degrees -- I'd like to see Bill Kristol's.

[christofay]

Watching the log rolling is appreciated. Naked Cap quotes another site with a run down of the Bear bail out.

This is worrisome:

"People were not novating with Bear and the CDS market was careening out of control, like a collapsing Ponzi scheme" the head of asset allocation at one of the largest corporate pension funds in the world tells The IRA. "The Fed finally stepped in very late to save the Treasury's ability to issue debt, but this clumsy effort is not without cost. The credit standing of the United States has started to be perceived as being impaired because foreign investors think our government officials don't know what the hell they are doing. Even though asset quality problems inside many European banks are far worse than in the US, for example, you don't hear any noise coming from the EU."

http://www.nakedcapitalism.com/2008/04/bear-conspiracy-theories-and-carry.html

and

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

"our government officials don't know what the hell they are doing"

isn't that a constant subject on this blog? but in this case it's Bernanke and the 35 yr old

[christofay]

"novate counterparty positions "

is not in the Chronicles of Narnia

but is used in a financial panic

[christofay]

Read the Naked Capitalism post. It reads as if the Fed is trying to save the virus and kill the patient

[christofay]

It's as if a group of Tiffany shoppers declared they were establishing a communist dictatorship and that they were going to be the vanguard of the proletariat.

[christofay]

""our government officials don't know what the hell they are doing""

sorry, that wasn't a slight on the Fed, that was a reference to the Treasury. Bernanke just has to work with them

what sort of trader would accept working with the Bush administration as a counter-party?

[Maurice Lanselle]

Yes, of course: they prevent "wealth" generated in a bubble from being recognized as fraudulent and unfounded.

No, of course: as housing prices fall, and mortgage values drop, they just transfer the drop to the "taxpayer".

Propping up the "value" of mortgages and the properties they finance must certainly create wealth. Not only has "economics" carried 19th century physics as an albatross, "economists" have been deluded into believing that the laws of thermodynamics are hyperbole.