It is already the world’s largest off-balance-sheet SIV, together with the GSEs, and it is the greater-fool-of-last-resort.

But the Paulson-Bernanke-Bush plan is to add the treasury to the count, not the fed.

A few observations: no one seems to worry about the complete lack of wealth management expertise at US gvt level (this in contrast to little Singapore, where aspiring politician/official/manager types get exposed to the responsibility of looking after the nation’s wealth). Listened to Stiglitz on the BBC just a few minutes ago and he said, uncharacteristically politely, that information asymmetry makes solving the crisis very difficult. In my book, there is lots of money to be made off the government (I would caution against equating government and taxpayers in the US, seems that the taxpayers contribution is becoming more and more theoretical). Apart from the asymmetry Stiglitz seemed to imply (between private sellers of impaired assets and the sole gvt buyer) there is another information asymmetry: only the US gvt knows how much seignorage it is aiming for (if there is any kind of management in this at all) and only the creditors (eg Laobaixing Inc) know where they will suicidically call it quits. We are moving from a contest between many more or less independent and pretty chaotic private capitalist actors against a handful of state capitalists (the situation where the US exports mainly private financial assets and domestic leveraged asset ownership is mainly funded by private liabilities) to one where a giant debt ridden state capitalist (possibly captured by a tiny minority of the business community), who happens to have the power of seignorage, faces the same handful of foreign state capitalists. What will happen? Will anything constructive come out of this? Will the US gvt invest in skills to protect/manage state capital? Or just a burst of inflation (plus international instability to boost the external value of the USD for a while) followed by sloppy privatization of the newly acquired assets. Those who remember the S&L crisis and have cash may already be licking their lips.

However, there are quite a few smaller scale winners and losers in this too: the little guys needing a small subrime loan to get a roof over their head on the one end and the professional type with just enough fat to survive the winter and then benefit from high inflation low interest during on the next hole.

I dislike comments connecting Mr Paulson’s employment past to his role in this crisis, no one deserves to be accused of inappropriate behaviour without even a hint of factual evidence. However, it is a pity that people with that kind of a background seem to be the only ones passing through the selection filters. Someone should take a look at requirements for senior office in the US. You would not appoint a non-lawyer to a Supreme Court but also not a wealthy legal entrepreneur in the litigation business. The Treasury has a very complex mandate and perhaps that should be changed. Financial regulation of a capitalist system (i.e. the one that was just buried in the US but flourishes elsewhere) should be in the hands of non-partisan or balanced management teams appointed for lengthy periods and completely independent under a stable mandate. More or less like central bankers and judges. Everyone with even a little intuitive familiarity with supervising people, managing options with very short remaining terms, out of the money and under severely leptocurtic conditions, will know what this is all about. When it is also close to bonus time, it becomes even more interesting..

I think that the hand being dealt to the incoming administration is becoming increasingly unattractive. Those who wanted to Kill the Beast (the Beast being spending and taxing for bad, non-discretionary things like welfare and healthcare, thus removing space for tax cuts or more deserving and variable forms of spending) seem to have called in a nuclear strike just before the end of the quarter. But, it will not work. The Beast happens to be democratic and has nuclear weapons of its own.

You put a few dozen dollars a week in the hands of the poor and working class, and then several tens of thousand a week in the hands of the rich.

I don’t think that is a good idea.

Seems to me, that would immediately put 50-75 dollars a week in pockets of every family, and go a long way toward reversing stagnant incomes people have suffered for several years.

Meanwhile, let the credit markets sort themselves out.

What good does it do to bailout the credit markets, when the consumer can’t afford to take on more debt.

I am not an expert here, so I probably am missing something.

Futures have opened sharply lower. Dow -217, S&P -32, NDQ -46. (As of 7:19 PM, Sept 21st)
http://www.cnbc.com/id/17689937

Looks like the Paulson ’short squeeze’ lasted a day and a half.

I bought some more Gold over the weekend. The fiat US dollar is toast. It’s only a matter of time. LOL.

People on Wall Street are sharks that will do anything to make an extra buck, and the system only really works when you have the sharks fighting each other, and if you do your own research to figure out what is going on and push back if necessary.

But you have to be careful.

Chris: the resulting trillion dollar loses are being dumped onto the innocent US taxpayer.

Actually a lot of the taxpayers are rather guilty. One thing that is really slippery about Wall Street types is that if you want to catch them you really need to be careful. My guess is that a lot of executives have left the burning building and are now posing as “innocent taxpayers.”

Also, I’m actually not that concerned about Paulson leading the bailout. It takes a thief to catch a thief, and someone with less experience and more sincerity is likely to get totally outmatched. The thing about Paulson is that he knows most of the tricks, and so you just need to adjust the incentives so that he does the right things.

next speech I say:
…The United States of America will not permit the world’s most dangerous financial instruments to threaten us with the world’s next Great Depression.”

slightly edited by brad setser for tone (last sentence deleted; i do not like all caps)