Sunday, September 28, 2008

It reminds me of "Mister Johnson" -- each attempt at a bailout leads to a larger successive attempt. What would the next one look like if banks say, "our shareholders deeply thank you for the lifesustaining loot, but we'd really rather sit on our cash for a while, just to intellectually digest the Lehman bankruptcy, and, besides, the United States is heading for a major recession anyway, so it is a bad time to have any paper out at all"? Under the original Paulson plan, Hank could intervene in any market he wants to stabilize it (i.e., he could buy up short-term corporate paper). Under the new plan, the markets are at the mercy of their participants, and Paulson's effect on most markets is mediated by the psychology of the banks.


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