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Friday, September 19, 2008

Economics is not my strong suit.

But it looks like we all owe Hank Paulson a round of applause for keeping Wall Street from gargling with buckshot.

Was this ultra-bailout really necessary? Yep:

[T]he financial system probably couldn't take another week like the one we just went through. Stocks plunging, credit markets freezing. As economist Robert Brusca puts it, "The proposed US government rescue plan comes at the end of a week of almost unprecedented turmoil on world financial markets amid a crisis of confidence in banks."

The government had to get ahead of the curve and quit reacting on a case-by-case basis. If you look at banking crises in Japan and Sweden, for instance, all roads eventually led to a government bailout with taxpayer money at risk. The rule in these cases seems to be the sooner, the better. If you want more evidence, markets around the world and here in the United States are soaring on this news. Strategist Richard Bernstein of Merrill Lynch, in a research note, says the bailout plan is "an opportunity for the government to solve the on-going problems through one system-wide solution."

...[C]ould we have avoided needing a bailout? Perhaps the government could have offered this sort of plan a year ago and dispensed with the massive rate cuts and the new loan facilities from the Federal Reserve. Clearly neither Ben Bernanke or Hank Paulson thought the situation would escalate the way it has. Recall that Bernanke at one point called this a $100 billion problem. It now looks like he was off by a factor of ten or 20.

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