Shostack + Friends Blog Archive


Brad DeLong on the bailout

Brad DeLong has a FAQ up about Geithner’s plan to purchase toxic assets on the theory that the market has undervalued them, and will in time price them properly. Among the items:

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn’t make back its money?
A: Then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

This response reminded me of a conversation I had over a beer with a banking regulator back in August 2006 or thereabouts. He reported on a IM conversation he had had with a colleague whose expertise lay in the area which subsequently imploded. After jokingly asking “Time to buy gold, huh?”, there was a pregnant pause. Then came the response: “Buy ammunition”.
I ordered another beer.

3 comments on "Brad DeLong on the bailout"

  • David Brodbeck says:

    It seems to me the question lumps a few too many things together. Isn’t it entirely possible that the markets recover (and civilization doesn’t collapse), but these particular assets still turn out to be worthless?
    Still, the response pretty much sums up why I still have my retirement money in the stock market. I won’t need it for many years. I figure the economy, and hence the stock market, will eventually recover — but if it doesn’t, dollars will be useless no matter where they’re stashed.

  • Dan Weber says:

    Then we have worse things to worry about

    I just really notice this phrase. I remember it from the past decade. Someone would say how they were going all-in on a house, and I said “what do you do if housing prices decline?” and they would say “well, if housing falls then we all have a bigger problem to worry about!”
    Sometimes that other bad thing happens. And sometimes it happens because people insist that it cannot.

  • Anonymous Coward says:

    I actually work for a company (non-US) that, among other things, sells ammunition in the USA.
    Sales have been booming there (but not in our home country, oddly enough.) In fact, ammunition sales in the US are so strong now that we are worried about sales collapsing when the market recovers and people have all this stored ammunition to use up …
    The answer seems to be that we should invest our sudden cash influx in under-valued stocks!

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