On Sep 29, 2008, at 9:51 AM, Michael Nuwer wrote:
ravi wrote:
Thanks, that makes sense, as also the issue of a freeze in lending
between and to banks ... but I took Krugman's initial analysis to
mean that the issue of trust will not be resolved by a one time
injection of funds (however big and in whatever format)...
Is the Paulson plan an "injection of funds" or is it merely a
substitution of toxic waste now on balance sheets with treasury
securities?
Yes, the latter. I am using terminology poorly here. Let me try again:
from my initial reading of Krugman, I got the impression that buying
the toxic assets one time (for $700 billion) will not solve the
fundamental issue: which is that banks and investors do not trust
other banks and institutions. The toxic asset purchase removes the
immediate uncertainty: bank A no longer has to worry about what toxic
asset losses lie buried deep in the books of bank B. But what I
gathered from Krugman was that most of these banks are under suspicion
for larger fundamental reasons...
Now, btw, Krugman has mellowed down his position significantly.
Offering anecdote and hearsay, he now paints a more pragmatic picture,
suggesting that some bailout or government intervention of that sort
(as opposed to other sorts of intervention, such as take over, re-
regulation, etc) may indeed be necessary.
I just checked my Fidelity 401(k) -- I am down 16% since the beginning
of the year :-(. Good thing I don't have a lot of money! ;-)
--ravi
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