My first reaction was that insuring mortgage-backed securities now would be like insuring homes in New Orleans while Katrina was just off the coast. The risk of default is so great you'd need to set the premiums really high, which would price out everyone except the banks with the worst assets. Adverse selection times a billion.
If I read a bunch of smarty guys making smarty guy arguments for it I could be converted. But Brad DeLong and Michael Ettlinger and Robert Waldmann and Mark Thoma and Justin Fox say it's a bad idea, and I haven't found a single credible person praising it, even among conservative wonks. Nada from Alex Tabarrok, Tyler Cowen, Bruce Bartlett, Andrew Samwick. Even the
National Review crew can't pretend it's a good idea. Mark Zandi, a McCain advisor who has written a book about the subprime crisis, says it would be less effective and cost more than the Paulson plan.
There's just no indication that this plan came from actual policy analysis or research. It didn't originate in the finance committee or get passed on from think tanks to the House. The (Republican, again) Treasury Department considered and rejected it on their own already.
I don't think we have to treat an idea as respectable just because a good chunk of representatives in one party endorsed it. Congress has a pretty high capacity for
dumb.
