Monday, September 15, 2008

BEST REASON NOT TO WORRY ABOUT A FINANCIAL SYSTEM MELTDOWN: KRUGMAN THINKS IT'S POSSIBLE - AND HE'S ALWAYS WRONG

A COUPLE OF MORE FINANCIAL COMPANIES ARE TAKING HUGE HIT BECAUSE OF THE SUB-PRIME MELTDOWN:
The weekend’s events indicate that top officials at the Federal Reserve and the Treasury are taking a harder line on providing government support of troubled financial institutions.

While offering to help Wall Street organize a shotgun marriage for Lehman, both the Fed chairman, Ben S. Bernanke, and Mr. Paulson had warned that they would not put taxpayer money at risk simply to prevent a Lehman collapse.

The message marked a major change in strategy but it remained unclear until at least Friday what would happen. “They were faced after Bear Stearns with the problem of where to draw the line,” said Laurence H. Meyer, a former Fed governor who is now vice chairman of Macroeconomic Advisors, a forecasting firm. “It became clear that this piecemeal, patchwork, case-by-case approach might not get the job done.”

Both Mr. Paulson and Mr. Bernanke worried that they had already gone much further than they had ever wanted, first by underwriting the takeover of Bear Stearns in March and by the far bigger bailout of Fannie Mae and Freddie Mac.
AND BECAUSE THE FEDS' EARLIER BAIL OUT REDUCES THE HAZARDS AND POTENTIALLY MAKES THE MARKETS BEHAVE EVEN WORSE.
ROUND UP HERE.

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