On Oct 1, 2008, at 11:45 AM, Jim Devine quoted Dean Baker:
The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash. Hence the hype about the urgency of the bailout was an invention.
This really gives me pause. The financial system is imploding, and is in desperate need of recapitalization. One of the things that turns a recession into a depression is a cascading wave of bank failures and a contraction of credit. (This is something that Bernanke knows a lot about.) Intervention has to be quick or it will be too late. The longer-term stuff is very important, but unless you want to take the risk of a severe implosion (and I know there are some who want to do that), saying stuff like this isn't very helpful. Besides, the history of banking crises and interventions around the world shows that the longer you wait, the more expensive the bailout becomes, and the worse the economic damage.
Oddly, Dean then moves on to accept the need for equity injections. So why this bit?
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