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Getting ready for Phase Two of the credit crisis

August 23, 2008 | 12:46 pm

My column in the Times this weekend focuses on what's shaping up to be Phase Two of the credit crisis.

One year into this financial-system mess, U.S. regulators are facing up to the fact  that there are limits to what the government can and should do for severely wounded banks and brokerages.

That was signaled in a speech that Federal Reserve Chairman Ben S. Bernanke gave on Friday at an annual gathering of central bank officials in Jackson Hole, Wyo. Regulators, he said, need to be more disciplined in how they handle future shocks to the financial system, with the goal of "reducing the range of circumstances" in which the government steps in. Read the speech here.

As I note in the column, if regulators really are ready to play tougher with ailing banks and brokerages, they'll probably have plenty of opportunities to show their resolve: Another element of Phase Two of the crisis is likely to be a mass fire-sale of assets by financial companies that realize their only hope of survival is to shrink drastically.

But a fire sale will just put further pressure on bank and brokerage balance sheets across the board, raising more risk of failures.

Read the column here.

Thoughts? Comments?