the social scientist.

Do Paulson and Bernanke Really Understand What's Going On?

Excellent stuff Jason.

Perhaps you can clarify where credit default swaps enter into all this. Wasn't all this bad paper insured against default? Who, other than AIG sold the insurance? How is it possible that the notional value of the insurance far exceeds the total amount of debt? Does a seller of the debt keep the insurance, and then the buyer buys a new insurance on it? Or when they repackage the loans do the buyers of the loan package buy new insurance? Or? Do insurance sellers know they are selling more than one insurance coverage on a loan?

Did you see Krugman's take on Paulson's plan? Krugman says we should demand equity ownership in the institutions from which we buy the debt. Makes perfect sense. If the intent is to free up credit, by improving the equity positions of the lending institutions, then pour equity capital into them. This also does more to resolve the deleveraging paradox (where everyone is deleveraging, which deflates asset prices, which worsens everyone's debt to equity ratios).

Will rescuing the financial institutions help the housing problem? I don't see how. Those who are qualified to get home mortgages already can through Fannie Mae etc.

Did you see where Microsoft is going to borrow, using commercial paper, to help fund the purchase of $40 billion worth of their shares? That really helps the credit crunch and the economy, doesn't it? So they don't see any avenues for expansion? Worried about the value of management's stock options are they?