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I like the oracle of Omaha as much as the next ripe-from-college-finance-student, but I can't side with the faithful teacher on this one.

Too many of us are calling this a depression where we should be calling it a correction. That's not to say corrections aren't messy -- they are -- but it's absolutely necessary if you're to return equilibrium to the markets. Til now prices have been artificially inflated by interventionist government policy. That's inefficient (it undermines the price mechanism) and it's unsustainable.

Government intervention isn't the answer. It might stave off a correction in the near-term, but it can't stop a correction in the long-run. Better for Washington to do nothing, which is to say, better to let the price mechanism do its work and restore natural equilibrium to the markets.

And please be fair: The "Bankruptcy is the answer" argument is hardly retardation (as you've put it). The article you're referring to captured the opinions of 166 economists of the Harvard/Yale/Princeton/UChicago ilk. You may not agree with it's conclusions but for God's sake man, don't call it retardation.

You can call it whatever you like, that doesn't mean a thing to the people in the bread lines.

What people seem to be failing to understand is that the "near term correction" is going to be huge, regardless of whether or not there's an even bigger one in the future. We need to get through the first one to reap the benefits of missing the next one.

Or, we can try to avoid the current concerns as much as we can, and use the time we've bought ourselves to reform our system and negate the need for that larger one down the road.

Sorry, your post is just completely wrong because this is not a market situation. The government regulates banks through the FDIC, and implicitly underwrites the insurance that is granted to savings accounts. Therefore people have absolutely no incentive to pick "safe" savings accounts, where there savings are loaned out to "sure bets". Instead, if the bank has been covered by the FDIC, the only thing that matters to a consumer is the interest rate--he/she doesn't have to consider risk.

This is one of the problems of being fresh out of college. You not only know all of these models for things -- you actually believe in them -- like they're some sort of independent thing that has worth beyond its use as a glorified guesstimation metric. I don't mean that in a patronizing way -- I was exactly the same.

Buffet's kind of a champion of what you might call really-existing markets. I don't think he sees the US economy as a grand experiment where "health" exists independent of the people that are its constituents. A market is better where, as he says in the interview, 3 million extra people don't lose their jobs.

I don't see the money supply contracting by a third like it did during the Great Depression. There are several different accounts of the Great Depression, but all of them agree that the monetary contraction was one of the biggest causal agents.

This "Pearl Harbor" talk is baseless fear mongering. The numbers I've seen for growth, employment, and lending activity in all non-real estate and non-financial sectors has been downright normal. Over 200 economists from good universities have signed a letter urging Congress to act slowly and deliberately. I believe the "Bankruptcy is the answer retard" that you speak of is a professor at Harvard.

This is not Ron Paul supporters speaking, this is level-headed people that are urging our representatives not to act rashly out of fear (again). If you think a repeat of the Great Depression is likely, perhaps you should learn something about it. Until you do, you can go easy on the self-righteousness.

Edit: Here is a blog with some links that show bank lending is up through the month of September. Several indicators have hit all-time highs.

http://www.marginalrevolution.com/marginalrevolution/2008/09...

???

Ron Paul supporters claiming Warrent Buffet has a vested interest in the bailout

First, Buffet does have a vested interest in the bailout. I'm not sure why you would contest that. I'm not even going to bother citing it, as his massive investment in Goldman is well-known to everyone actually paying attention.

Second, the "all banks should be liquidated" bullshit is a pathetic straw man argument.

Third, the Pearl Harbor analogy is wrong on two counts. A) The similarities between one country attacking another and businesses failing are...tenuous, if existent at all. B) Even if the analogy was sound, the United States lollygagged for many months after Pearl Harbor, and then sprung into action by...invading Africa. Okay, we still won the war, even though something like 80 percent of our resources went to Europe. Had we busted the budget going full force to Tokyo, Germany would extend to the Urals.

Blame, putting culprits in prison, figuring out how to stop this from happening again, all this will come.

I'm sure your prophecy skills are as good as Paulson's (who a few weeks ago claimed the system was "sound". That's a 700 billion dollar miscalculation. The greatest error in the history of the world?) But, I'm inclined to believe that the bankers' next instruction to our leaders isn't, "Now put us all in jail." Just a hunch.

If one were to see buffet taking a completely selfish stance on this, we'd expect to see him supporting the market crash. After all, he's got more money than anyone to buy up all these penny stocks and make even more money during the recovery.

I'm worried that he does support the bailout, because clearly we're all missing how bad this actually is.

I tend to agree, but the Pearl analogy doesn't quite hold. Suppose, for whatever reason, in WWII the US and Japanese were originally allies, and there were high level Japanese military officials working in the Pentagon. Then it becomes clearer that proceeding incorrectly could cause far more damage than proceeding slowly but cautiously.

Unfortunately, the perceived "character" issues that the White House has is working against the US in this time of crisis. The WH is suspected by some of using "emergency" situations to gain power, and some folks are suspicious that they may try to do it again.

There are a lot of people for whom the phrase "George Bush has a plan to fix this" doesn't inspire confidence.

So let me get this straight. You are in favor of using taxpayer money, from the pockets of people who are actually hurting or soon will be, to save the skin of the very people whose questionable practices got them into this mess?

What kind of fucked up priorities are those?

You might overestimate how much the of that taxpayer money comes from the poor people who are suffering. Some of these bank executives we love to hate might pay more taxes in a year than the average american pays during a lifetime.

But if ones includes the inflation tax that they (Banks, etc.) directly benefit from by getting the fait funny money first before the rest of society and it’s results on everyone, this may not be true. There are more poor and middle class that have the inflation tax steal from them (for which most don’t understand the how of it) in addition to the direct tax that takes to support the preplanned central banking scheme that benefits the few. When you add to that the mal-investment which makes decisions skewed for the poor or middle class trying to get ahead, one may be able to make a even stronger case against the preplanned ordered centrally controlled economy and a better case for a more market based one with sound money.

No, I favour using money, from wherever it is available, to save all our skins.

Sure that makes sense, but many experts will tell you that purchasing all the bad paper will not save the banks.

We still get a depression AND we've spent 700 billion.

The better alternative is to pick a few winners, re-capitalize them, and let everyone else fail. That's both cheaper and more likely to succeed.

Yeah, that's what I've thought. Blaming kind of made sense when things weren't collapsing, helps us fix the system. But now, blame is the least useful thing, and people rejecting the bailout just because it looks like getting rich people off the hook or because they don't want to pay for other people's mistakes is completely ignoring the real issue of economic meltdown. That meltdown will affect everyone no matter how financially responsible they are.

Buffet mentions a crisis of confidence in the markets as a reason for the bailout. But what is the cost to society of the loss of confidence in the government? What will happen to people's faith in our political system if this bill passes despite the opposition of the American people? What will be the effect on the people once the realization sets in that their government only represents the ultra rich?

I think it'll be much worse than letting the current "crisis" play out without instigating the biggest coerced transfer of wealth in history from American taxpayers to a few people on Wall St.

I agree that bankruptcy is not the answer. What I question is the $700 billion amount and the time frame in which the money will be used.

There is a lack of confidence that must be fixed. It seems like a smaller amount of money could be used to fix the confidence problem and get the "wheels of credit" turning again. There may also be a need to purchase some distressed securities. With confidence restored, it seems like financial institutions could step back into the picture to buy low and sell high.

In my opinion bankruptcy would be a good solution, if those who made wrong decisions went bankrupt. Unfortunately, it seems impossible to limit the bankruptcies to to just those companies.

An interesting question is to what extent counterparties are responsible for the bad decisions of their trading partners. I think they are responsible to some degree, because they should and could have checked the credit worthiness of their opposites.

But as the chain of counterparties gets longer, there is just no visibility as to the risks you are exposed to. And at that point it becomes a systemic question. That's the point where the government has to come in and stop things, or even better, not inflate a credit bubble to begin with.

>It seems like a smaller amount of money could be used to fix the confidence problem and get the "wheels of credit" turning again

The wheels of credit are turning, just not for the real estate sector:

http://mjperry.blogspot.com/2008/09/new-banking-data-wheres-...

Fears of the credit market freezing up and plunging us into a depression are just that: fears.

Meanwhile : http://www.marketwatch.com/news/story/whos-profiting-crisis-...