Friday, October 10, 2008

Strangely, the government might be the solution...

On reading the following piece of news, that the next time the mavericky people tell me that government is the problem and not the solution, I might have to politely tell them that they suffer from an extreme state of delusion and might need checking into the nearest mental institution...

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials. Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

First, they tried bailing out individual companies, then they tried a large scale 700 billion dollar bailout, then they tied lending to the banks directly, then they tried buying up short term commercial paper. The latest today is to take up ownership stakes in large banks directly. This might just work. This will give the taxpayers a larger stake in the game, might actually produce return on taxpayer monies invested rather than the previous ideas that were designed purely with the private enterprise in mind. Yes, the ownership stakes idea put out by the Treasury might work, but the downstream effects of locked up credit markets will be long drawn.

The caller on NPR this morning had a term for the current crisis where one is witnessing stocks, wealth and capital simply vanish into thin air so quickly: He called it ‘evaporational exuberance’.

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