24 September 2008
The Hasty Rescue
Posted by Joy Bischoff under: Constitution in Peril; World Economy .
Below is an excerpt from an article by Robert J. Samuelson of the Washington Post. I am surprised and encouraged that so many people, including liberals, understand that the bailout would take us into dangerous territory. Even Senator Dodd admitted that the terms of the bailout could be a threat to our Constitution. Maybe Americans will wake up and sense what we would be giving up if we give up our free market system.
Paulson’s Panic
Wednesday, September 24, 2008What we are discovering is that all the complex securities, combined with ever-greater international investment flows, have created a global financial system “so arcane that few people can understand its workings,” David Smick writes in “The World Is Curved: Hidden Dangers to the Global Economy.” The difference between now and two years ago is that financial managers then thought they understood the system; now they know they don’t. Ignorance breeds risk-aversion and fear.
Like wage-price controls, Paulson’s plan is no panacea. Banks, hedge funds, private equity funds and others are trying to reduce risk by “deleveraging” — selling stocks and bonds to raise cash, increase capital and cut their own debt. The rush to cash is a hallmark of financial crises. But what makes sense for one may be ruinous for all. Heavy selling depresses prices; lower prices then increase losses, deplete capital, prompt more selling and heighten fear. At best, Paulson’s plan might preempt this spiral by allowing investors to unload their least attractive securities.
But it wouldn’t automatically stimulate new lending, revitalize “securitization” or prevent more “deleveraging.” Time is needed. The rescue is being constructed so hastily that it may include all manner of flawed provisions: too much power for the Treasury secretary; authority for bankruptcy judges to modify mortgages. Congress faces a wrenching dilemma, imposed on it by financial markets and Paulson. If it dawdles, it may invite the panic that Paulson has brazenly predicted. But if it acts quickly, it may create a monster whose full implications emerge only with time.
Mail this post
Comments are closed at this time. Thank you for reading our posts!
