Well, it would be if you thought that the U.S. government had some moral or legal responsibility to bail out the GSEs. I don’t. In fact the U.S. gov has made it very clear that the full faith and credit is *not* behind the bonds. If investors never wanted to listen, then how does it become the U.S. taxpayer’s problem?

“They are going to ask for more of a risk premium, or would be damn fools not to.” I don’t think there will be any premium, but in any case that wouldn’t be the measure. The measure is vs the haircut. So let me ask you, Do you think that the cost of the risk premium would be more than the haircut?

“the next time the US writes down primary financial assets” Again, you seem to be supposing that the GSEs have the full faith and credit. They don’t and they shouldn’t be treated as such.

“They can take their football and go home.” Uh, well, let them if they want. Your reasoning boils down to: the U.S. taxpayer should be on the hook for hundreds of billions because otherwise foreigners won’t be happy about losing money in a mistake of their own making. No one’s happy about losing money, but that’s capitalism.

And on the issue of folks lining up to buy GSE bonds after getting a few joints knapped off their fingers, well maybe. But. They are going to ask for more of a risk premium, or would be damn fools not to. They are going to hold that debt with less confidence. And frankly, they will get burned again the next time the US writes down primary financial assets, because once you have the _successful_ precedent it will certainly be resorted to again when domestic financial or political circumstances become high-pressure.

It is all wonderful theory until one gets back 95 (or 90 or more likely 80) cents on the dollar; after that, business decisions get sharper edges by our international counterparties. Here’s a question for you: does Indonesian and Argentine sovereign debt trade at lower premia now relative to 1995? Oh but that’s right: they are _minor_ economies while the US is the exceptional economy. Don’t bet on that with your own money. I think, in a phrase, that Roubini is talking through his hat because he is more than willing to kick our foreign couterparties in the shins for whatever reason. They can kick back. They can take their football and go home. They don’t want to, but if we give them reason enough we’ll find out what the game is all about.

As Roubini says, the best time to lend to someone is *after* they restructure. Current bondholders always argue against restructuring by saying that if it goes through, they won’t lend any more money. But this is just talking their book, and the historical record shows it is false, and they are *more* willing to lend their money afterwards, because the enterprise or entity is now on more solid footing.

So, I would: force through a big haircut on the bondholders; have the U.S. government at the same time guarantee the debt; and wind the GSEs down over a twenty- to thirty- year period.

Forcing through a huge haircut IMHO is dollar positive. A lot of those losses will be born by foreigners. So while it may not be so good for foreign relations (the Chinese will be extremely pissed), the U.S. is overall shedding debt.

Are you seriously suggesting that Albert Gore, Jr., could have done a better job?

Without any doubt or hesitation, I say that Albert Gore Jr would have done a spectacularly better job than the current occupant of the office.

Even the briefest review of the catalog of crimes, misdemeanors, errors of judgment, omission, and comission, and acts of plain idiocy of the individual currently ensconced in the Oval Office lead any thinking person to that conclusion.

David T. Davis
Cody, Wyoming

. . . How does cutting these bonds NOT have a severe negative effect on the dollar?? The proposal just does not seem to me to have been thought through—or it never would have been uttered.

Short the hell of the stock of a company, buy up all its bonds or other non-equity obligations (engage it as counterparty on swaps/swaptions) and then watch the Bushies use the legacy of our grandchildren to lock in a profit for your.

Just a variant of the reverse LBO scheme.

Why is no one analyzing this GSE situation from the perspective of the well-demonstrated policy of the Bush administration: controlled chaos in behalf of ideological allies among the aristocratic set? Contrarily claiming “one of the Bush Administration’s prime objectives [is] to kick as many cans down the road as possible so they become the problem of the next regime” does not strike me as an all that rigorous analytical conclusion.

And why is no one calling into question the uber-securitization of private credit markets and the consequent ratcheting up of leverage? Am I to believe all the crap created in the process represents legitimate claims worthy of being saved?

As far as I am concerned the arrangement much more greatly benefited a few and OBVIOUSLY threatens to be the detriment of many. This outcome is no great surprise and so begs the most important question of all: was it all planned to end this way and are those who play weak parts in bringing about resolution, in fact, traitors to the principles for which the U.S. was formed?

He researched voter fraud in Florida in 2000. Florida (and remember Jeb was governor) hired the most expensive bidder on a contract to scrub felons from voter rolls. Florida is one of those states where felons can not vote (aside: I don’t get that concept, once you have served your time, you have paid your debt to society).

Anyway, the firm hired got shall we say creative in how it scrubbed voter rolls, pulling in people who had merely committed misdemeanors and those whose names resembled those of felons. The results got rid of far more black voters than were felons. Note not all counties accepted the states’ purge list. One county bothered checking the list and found it had a 95% error rate.

Blacks vote 90% Democratic. Palast, using the turnout rates of black in Florida in 2000, estimates that this procedure cost the Democrats 22,000 votes, versus a bit over 500 for Republicans.