Saturday, 27 September 2008

Latest—$700 billion not enough

What if we let Wall Street nurse at Treasury until it’s dry, and still nothing happens?

That’s a question popping up with dismaying regularity on the economics blogs and financial pages. They say the weight of the rotten ‘assets’ pulling the banks into the abyss is so overwhelming that the Paulson plan wouldn’t absorb but a fraction of them and won’t get bank lending out of the ICU.

Naked Capitalism says the loans that could qualify under the Fed buyout scheme actually total something like $4.5 trillion, or over six times what the government wants to throw at the problem.

Another common thread (contradicting what I wrote 12 hours ago) is that time is truly of the essence. Some blogs warn that Monday could be too late if the unraveling isn’t halted.

I don’t pretend to be any more than average in financial literacy, so maybe they’re right. However, if Armageddon is imminent anyway, wouldn’t it make more sense to have a Treasury with a couple of quarters still in its pocket? Does it really make sense to shoot off the last weapon in our arsenal?

The IMF (no less! We’re getting advice on our meltdown from the IMF! God is great!) warns that throwing the lifebuoy to illiquid banks may make matters worse in the long run. It, characteristically, advises us to swallow our pride, feel our pain and let the moribund patients die. By declaring certain banks survivors and taking the rest out back and shooting them, the government would end the guessing game and maybe restore confidence in the few left standing.
That approach would certainly be more popular with the public. Firing squads! Yes!

1 comment:

carnelian said...

Ben Stein's column in todays NYT highlights the massive role of derivatives and credit swaps in the unraveling of Wall Street...wish someone could figure out how to make those players be the payors for the mess they created.