Friday, October 3, 2008

John Cochrane: The Bailout Plan Is a Disaster

Levitt interviews top economist John Cochrane from Chicago GSB on the bailout, here is the link. This metaphor is outstanding, among other important things he says in the interview:
There is a storm out on the lake, and some of the boats are in trouble. Commodore Bernanke has been helping to bail water from some boats until they can patch themselves up, encouraging other sound boats to help, and transferring passengers on sinking boats to others. But it’s getting tough and the storm is still raging.

Someone had a great idea: let’s blow up the dam and drain the lake! O.K., it might stop the boats from sinking, but there won’t be a lake left when we’re done. That’s the essence of the Treasury plan.

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