Word: paulsons
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...some critics, however, the efforts by Paulson and Bernanke look erratic and piecemeal, a constant dash from one fire to the next. And even Treasury officials are keeping a sober perspective about the effect their moves can have on a system as panicked as Americans' is. "This isn't going to be the new Treasury program that saves the world," says department spokeswoman Michele Davis. "That's not going to happen." But there is a unifying theme that explains much of what the big brains at the Fed and Treasury have been doing. And the efforts this week fit with...
...major initiatives unveiled by Paulson, Bernanke and New York Fed chairman Tim Geithner over the past months have all been efforts to do for the shadow banking system what was done for the regular banking system in the 1930s. To stop the institutional run on money markets, Paulson announced on Sept. 19 an insurance fund for them that would be backed up by funds usually reserved for currency stabilization. The AIG and Merrill Lynch interventions were attempts to dissolve failing companies in an orderly fashion without panic, as was the Wachovia bailout. The opening of the discount window to investment...
...decision to shore up commercial paper will allow companies that are unable to borrow money from either the shadow or the real banking system to have access to the lender of last resort (the government), ensuring that credit still moves in the system - hopefully. And the $700 million program Paulson is steaming ahead with will allow for the clearing of bad loans, and inevitably the orderly failure of companies that invested too heavily in them...
Will the moves work? Not even Paulson and Bernanke know. And what is most worrisome about the current crisis, and the latest moves it has necessitated, is that it shows how badly the shadow banking system has managed to undermine the traditional banking system by incentivizing those bad loans. Fueled by the shadow system's demand for loan-based derivatives, enough regular banks issued lousy loans that now they too are failing, hence the fate of Washington Mutual and Wachovia. In the worst case of an unchecked, full-blown panic, even banks that operated cautiously within the post-1929 safeguards...
...That was one reason so many Americans regarded Hank Paulson's bailout plan with skepticism. And it's why Britain's Prime Minister Gordon Brown and his Chancellor, Alistair Darling, did not want to dwell Wednesday morning on how Britain's banking sector had got into such a parlous state that the government was compelled to spend up to $88 billion in taxpayers' money to secure it. Their emergency rescue plan was hatched over weeks but finalized in such a hurry that bleary officials labored overnight to finish it before the skittish markets opened. At a morning press conference, both...