|
In a New York Minute
Everything can change
In a New York Minute
Things can get pretty strange
In a New York Minute
Everything can change
In a New York Minute
With thanks to the Eagles, the above chorus line about sums it up. The biggest bailout in U.S. history last week presaged the biggest bankruptcy in U.S. history yesterday. Things have definitely gotten pretty strange…
To his credit Treasury Secretary Paulson finally drew a line in the sand over the weekend, confirming yesterday that he “never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers”. If Paulson is serious about letting capitalism work there will definitely be more failures. However, if more financial institutions are allowed to collapse this could also serve to speed up the healing process.
The alternative to making financial market players sort through the mess that they created is to try and concoct the mother of all bailouts. Although difficult to comment on what such a bailout might look like, it is safe to say that it would include a consortium of central banks and financial institutions joining hands and throwing an obscene amount of money at the financial markets. Supposedly for the greater good, some of this money would undoubtedly be connected to taxpayers.
In short, while no one wants to see the financial market upheaval worsen, a more troubling outcome could be if Paulson and company continue to try and temporarily infuse a false sense of optimism into the marketplace by throwing more good money after bad. With WaMu, AIG, and others potentially about to collapse, Paulson and Bernanke are on the stage. They should stop trying to bail the system out and instead start suggesting that the crisis does not stem from a buyers strike but from the delusional expectations of sellers. Moreover, they should hint that the limits to monetary policy and U.S. government intervention are at threat of being met. In other words, hold that line Paulson, hold that line!
But alas, something tells me he won’t.
“I'm committed to working with regulators here and abroad, as well as policymakers in Congress, to take additional necessary steps to maintain the stability and orderliness of our financial markets.” Paulson, September 15, 2008
|
