I don't see why you should be surprised that two cranks happen to agree that something is a bad idea. Both of them have made careers out of bad-mouthing the work of others. Just because Kristol brings his mealy-mouthed hypocrisy from the "right" and Paul (I-AM-THE-LAST-GENIOUS-ON-EARTH) Krugman from the "left" doesn't mean they won't occasionally throw their darts at the same balloon.

I don't know why any thinking person would pay any attention to either one of them.

(I'm a conservative, or maybe even a "neo-con," but I am bummed that Fred Barnes allowed Kristol into a position of responsibility at The Weekly Standard. It won't be any more reliable than the New York Times pretty soon.)

Hey Dan, I understand the temptation to want to shut yourself in a dark room and cry, but you're a political economist, right? And not just that, but a political economist WITH A BLOG. Why don't you tell us what YOU think about the bailout plan? Inquiring economics idiots such as myself would like to know...

I do not have the economic horsepower to know which end is up. Kristol does not apparently have it, either, because, unlike Krugman, he does not offer up much in the way of suggestion.

Krugman's plan seems to be a mass bailout of a large number of firms -- much in the way of Freddie and Fannie. The question is -- how does that work and where does it stop? Do we want the government to own Morgan Stanley and Goldman Sachs and Washington Mutual? Yikes and Yikes again!

My guess is that we can get to something like what Krugman wants with conditions on offloading assets that are as onerous as those imposed on AIG and Bear Sterns for the "cash for junk" transactions. This simply makes sense in terms of justice -- a company needing a government bailout needs to be paying a very high price for the privelege. Otherwise, I would sell Moral Hazard short in the market (provided the SEC lets me).

OK. I have boldly emerged from the fetal position and made a statement. Will our host do likewise?

Yes, please! As another economic idiot, I'd love to have your take on this mess. Thankfully, you're part of that small, but essential, part of the blogosphere that doesn't read like a partisan echo-chamber.

In any event, I'm going to dust off my courses about the Neolithic. The coming of the Neo-Neolithic all of a sudden makes them a bit more relevant to my students.

[...] plan comes from across the political spectrum.  Both Paul Krugman and William Kristol (via Dan Drezner) are highly critical of the bail-out as currently outline in pathetic THREE [...]

Why don’t you tell us what YOU think about the bailout plan? Inquiring economics idiots such as myself would like to know…

Yeah Dan, be bold. Punch it, kick it, shake it up and strangle it (but don't ask me what "it" is).

security studies geeks say that to IPE geeks? geez, I always thought it was IPE geeks that said that to security studies geeks, as you know full well they have been doing since the end of the cold war...

I distinctly remember a prominent IPE guy of liberal bent (now a professor at Princeton) saying to me, "in a couple of decades everyone including you realists will accept that security studies is really just a derivative subfield of comparative politics"...

sad thing is, I've come closer to agreeing with him than I ever thought I would...

:0)

lc

I agree, the "no oversight" thing really is absurd. My hypothesis is that while Paulson and Bush know that they aren't going to get it, they are just asking for way more than they want while things are in a negotiations phase. That way, they may actually get the level of oversight they want.

$700 Billion Dollar Bailout Good For Economy

WASHINGTON (AP) -- It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.

Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?

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Key elements of the plan remain in flux as behind closed doors Democrats demand modifications that would provide more help for ordinary Americans in return for bailing out the country's financial giants.

Dan,

I'm not sure IPE folks have much to complain about given that the 90's witnessed many of them bashing security/strategic studies ad infinitum (particularly realists). I remember actually having to defend the study of war, etc. with my IPE friends - which sounds so odd in retrospect, doesn't it?!

Folks interested in two interesting contributions to this debate (though I think Betts' is superior) should see David Baldwin's "Security Studies and the End of the Cold War" and Richard Betts' "Should Strategic Studies Survive?" - both in World Politics.

V/r,

William Ruger

Hey Dan its not like IPE is a dying field, its just not a particularly exciting and sexy one by the standards of us security guys ;) Just kidding.

I'm with William Ruger, the 1990s you IPE ganged up on us.

I suspect that among the top five causes of this crisis are

1. a slavish devotion to 'free trade', which helped cause huge balance of payments deficits and literally put us in hock to the Chinese and others

2. mass immigration which has driven down working class wages while increasing housing demand , thus running up prices to ultimately unaffordable levels

3. the linked phenomenon of H1-B visas and offshoring, which has hit middle class wages hard.

Now we are paying the piper. I hope some of those who have promoted the policies above will have a re-think.

IPE vs Security Studies is the wrong debate...

I must say I am truly impressed at the hubris demonstrated in the submitted bailout plan. Krugman & Kristol agreeing is one thing, but my agreeing with a former student who is a hardcore libertarian is truly impressive.

Then again, I do at least like the Bush administration trying to make it legal to absolve themselves from oversight as opposed to just ignoring those who would try and monitor their activities.

In a free market, it is impossible for prices to reach (and maintain) unaffordable levels. Once prices get too high, demand drops, and then so do prices. As I understand it, this whole thing is coming about because of regulation, not de-regulation.

Toward the end of Clinton's run, the government decided it would be a good thing to drive up home ownership, by pushing lenders to approve loans for people that didn't qualify by free market standards (sub-prime). In order for the banks and lenders to afford to do so, they passed the deregulations that are now taking the blame, which let the banks do all the wonderful tricks that have now ended in collapse.

However, it was not the banks that were pushing the government for this to happen. It was the government that pushed the banks to give out the sub-prime loans. So the alleged deregulations that occurred were actually just a necessary step toward new regulations. Once again, the government decided it knew better than the markets, and once again, we all have to pay for it.

Please do correct anything I have wrong, as figuring this mess out is an ongoing process. I don't claim this to be an absolute factual claim, it's just my interpretation of the information I have read so far.

I haven't commented in quite a while, but I have to get my 2 cents in. Henry Paulsen seems to believe that he knows how to value troublesome mortgage-backed securities, even though the best experts in the industry have no idea. Talk about hubris! The inability to value these instruments is by design. The buyers trusted the geniuses on Wall St who designed them without understanding the math behind them and without knowing anything about the underlying mortgages. These things are opaque on purpose! Combine that with the fact that no one knows how low housing prices will go, and any claim such as Paulsen's is obvious BS. A few clever guys took the profit and passed the risk on to gullible buyers, and now the taxpayers will get stuck. I would be in favor of seizing the assets of anyone who made money on mortgage-backed securities in the past five years. I also have no problem if a few more banks go under. For the FDIC to reimburse depositors would be cheaper than indemnifying these morons from their bone-headed mistakes.

Either way, the dollar will suffer big-time. We have been selling most of our debt to foreigners for several years, which is the only way we can continue to buy Chinese products and Arab oil. Who is going to buy another 200-400 billion in T-bills? (depending on how much Paulsen overpays for this crappy paper) My crystal ball tells me that the Chinese and Arabs are working on a way to unwind this mutual dependence without getting too burned on the inevitable crash of the dollar.