Economists agree: Paulson 'Truly Idiotic'

I'm surprised that more people haven't come to this conclusion, but I do feel validated when a professor at Columbia agrees with me. Paulson is either a genius or a fool, and I'm really not sure which one scares me more. Here are the salient points: until there can be some value attached to these "assets" this deleveraging will not stop, that a solution is best done by helping struggling homeowners, that politics as usual is interfering with the solution. By the way, I'm not the only one saying these things, but nobody in power is listening. Here's some highlights of the interview:

The Paulson Plan: 'Truly Idiotic'

Deal Journal: What the heck is going on out there? The Citigroup bailout isn’t a good sign of confidence in the overall financial system, is it?
Charles Calomiris: The key thing we’ve learned during the downward spiral of confidence is that you have to deal with the problem in the mortgage market directly. There are probably 18 million subprime and Alt-A mortgages out of 57 million total. Probably half will end up in foreclosure.

In the middle of a financial crisis, we’re using half measures designed in an inappropriate way, and we don’t accompany them with other measures. This has just been a completely mismanaged policy response.

DJ: There’s this perception that we can “fix” the price of individual mortgages. But shouldn’t the price of homes find its natural equilibrium?
CC: The market price is not decreed by God. The market price is an outcome of a variety of things. Recapitalizing the banks is helpful for giving them breathing room, and for providing credit in the meantime. But it doesn’t resolve the problem.

The problem is the completely opaque distribution of losses because no one knows how to value these mortgage losses. The way to solve the problem is from the bottom up.

...

DJ: What about creating government incentives for the formation of new banks?
CC: Recapitalizing the banks is a good idea in principle. Starting new banks is a good idea. It’s all fine, but we have to come to grips that unlike any financial crises – and I’m an expert on them – this one is a complete outlier. In other crises, the uncertainty on the total of the losses was resolved in a matter of months. We’ve been trying to resolve mortgages and CDO tranches for a year and a half. It’s not going well.

...

DJ: Why isn’t anyone listening to these ideas?
CC: The point is that they have made huge errors in the design of their assistance plan and they were forecastable errors.

For instance, Paulson doesn’t want there to be a stigma [around capital injections.] Does he really believe that by getting J.P. Morgan to participate, he creates the perception that JPM and Citi are the same?

Does he really believe that injecting preferred stock into banks is socialism but buying assets at above market price isn’t? Does he really believe that?

There actually is a stock of knowledge about this. The scandal is that when Congress has been considering this, not one independent economist has been allowed to testify. Do you know why they weren’t? Paulson and Bernanke didn’t want anyone causing problems.

DJ: Wait, that sounds like a conspiracy.
CC: Democrats didn’t want anyone [economists] testifying because it was before an election and no one was willing to stand before that bulldozer known as Paulson. No one wanted to make tough political decision before the election. They didn’t empower any experts to come in and testify. Why is that? They were playing politics, too. That’s what we’re dealing with–a complete leadership failure in Congress and the administration.

Don’t underestimate the role of politics in the decision not to fix things.

America’s atheists | Believe it or not | Economist.com

America’s atheists | Believe it or not | Economist.com

Believe it! According to The Economist article linked above, atheists in America would have a better chance at effecting change if we were to stop "picking the wrong fights." Of course, that's not our only problem, they also cite other reasons:

What accounts for the failure of atheists to organise and wield influence? One problem is that they are hardly a cohesive group. Another issue is simply branding. “Atheist” has an ugly ring in American ears and it merely defines what people are not. “Godless” is worse, its derogatory attachment to “communist” may never be broken. “Humanist” sounds too hippyish. A few have taken to calling themselves “Brights” for no good reason and to widespread mirth. And “secular” isn’t quite the word either; one can be a Christian secularist.

But none of that comes close to our biggest problem, which The Economist opines is our meanness. Sound familiar to anyone else??? We have been accused for years of being unpleasant anyway. I suppose that these criticisms are correct, at least to a certain extent. Many of us choose to speak out in favor of the separation of church and state wherever violations appear, rather than only when more groups are on our side. If that strikes some as petty, what can we do?
Also, the "new atheist" authors have brought this issue to the forefront with both the style and content of their writings. We have been criticized as "militant," "fundamentalist," "dogmatic" or just plain "rude". The root of the problem, again according to The Economist:

But another failing of the irreligious movement has been its tendency, frequently, to pick the wrong fights. Keeping the Ten Commandments out of an Alabama courthouse is one thing. But attacking a Christmas nativity scene on public property does more harm than good. Such secular crusades allow Christians—after all, the overwhelming majority of the country—to feel under attack, and even to declare that they are on the defensive in a “War on Christmas”. When a liberal federal court in California struck the words “under God” from the pledge of allegiance, religious conservatives rallied. Atheists might be tactically wise to accept the overwhelming majority’s comfort with such “ceremonial deism”.

OK, fair enough. We piss off a lot of people. And I'm all for strategy in the fight. But I will never understand why anyone feels that we should be satisfied with half-measures. But if these things piss off Christians, why wouldn't they be any more inclined to support our stand when it comes to "areas where American religiosity can do harm—over-aggressive proselytising in the armed forces, undermining science or AIDS programmes, alienating minorities at home and Muslims abroad". Can anyone say "stem cells?" How about other areas: gay rights? Abortion? Intelligent Design vs. Science in the classroom?
No, I'm afraid making nice with the religious will not make them any more likely to support a reasoned approach to any of the above. Therefore, what incentive do we have to abandon the quest for well-thought out policies at all levels of government? Or the constitutional right to separation of church and state?