Monday, 24 November 2008

The bailout is overdetermined

Steve Verdon partially answers why Citibank is getting bailed out:

Simple: the executives and large stake shareholders in Citigroup have the personal phone numbers of most politicians in their roll-a-dex. They are probably on a first name basis with Senator Harry Reid, Speaker of the House Nancy Pelosi, Secretary Henry Paulson, and Senator Mitch McConnell.

Voters on the other hand do not have these numbers. Voters are a large and diverse group. Voters are hard to organize and can be a fractious group at best. So when it comes to supporting large scale donors, possible future employers, over screwing the voter it is a no-brainer. Any attempt to look for additional logic/reasons in this is futile. We have here an extremely blatant case of rent-seeking.

There is certainly a diffuse-versus-concentrated interests issue at stake here, as well as an issue of asymmetrical expertise, an issue of the incestuous relationships between the financial sector and beltway insiders, and a healthy dollop of “Do Somethingism”—politicians, aka single-minded seekers of reelection and/or higher office, must be seen to be Taking Action to Avert Crisis even if said Action does not ultimately Avert said Crisis. In part, Citibank isn’t too big to fail; it’s too politically connected for its patrons to allow it to fail.

More on the broader economic nonsense afoot, including cautionary notes on using Depression-era policies to “fix” what’s going on now, from Megan McArdle.