Henry Paulson’s Bazooka
William Watson passes along an interesting analogy about the Fannie Mae-Freddie Mac rescue from Henry Paulson:
To Senate Republicans worried they’re being asked to write a blank cheque for federal support to mortgage brontosauruses Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson offered an intriguing analogy on Tuesday: “If you’ve got a squirt gun in your pocket, you may have to take it out. If you’ve got a bazooka, and people know you’ve got it … you’re not likely to [have to] take it out.” In other words, give me an unlimited line of credit and I probably won’t have to draw on it. But give me X billion and force me to come back for more in three months after that hasn’t worked, and you’ll persuade people the U. S. government is powerless. Then where will we be?
That shows how the CBO estimates on the Fannie-Freddie rescue run anywhere between zero and $25 billion.
“Henry Paulson’s Bazookanomics”