Hating the bailout? You won't like the next one, either.
News item: The Dow industrials more than 350 points Monday on fears the credit crisis is spreading, and the U.S. economy weakening. CNBC's Jim Cramer, love him or hate him, warned short-term investors to get out of the market today. He defined short term as the next five years.
News item from Bloomberg this morning:
U.S. Treasury Secretary Henry Paulson's $700-billion plan to buy troubled assets from financial firms may not work because it doesn't recapitalize banks, said Edmund Phelps, winner of the 2006 Nobel Prize for economics.
â€œThere are lots of reasons to think the Paulson plan won't succeed in cleaning up banks' balance sheets any time soon,â€ Phelps, an economics professor at Columbia University, said at a conference today in Washington. â€œIt may aggravate the second problem banks have, which is that they're quasi-insolvent.â€
Speaking at the same conference, New York Times columnist Paul Krugman agreed, saying the Paulson plan fails to recapitalize banks, and that another government intervention, to inject capital into the banking system, is probably inevitable.
Two cents: We're up to at least* four bail-outs now -- Bear Stearns, Fannie-Freddie, AIG, and the Paulson plan. And it appears increasingly likely that a fifth bailout is in our near future. It could be a week from now, it could be a month, it could be the subject of the next president's first prime-time address to the nation in early 2009, but it's coming.
The initial argument for the Paulson plan was that it was "systemic" rather than case-by-case. Sure enough, it is systemic. That doesn't mean it will work, and that doesn't mean there won't be another, fairly soon.
*I say "at least" four bail-outs, because I'm sure some readers will count last summer's big housing bill (Remember that one? Historic and sweeping help for struggling homeowners?) as a bail-out as well.
-- Peter Viles
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