When government officials surveyed the flailing American financial system this week, they didn’t see only a collapsed investment bank or the surrender of a giant insurance firm. They saw the circulatory system of the U.S. economy — credit markets — starting to fail.
Huddled in his office Wednesday with top advisers, Treasury Secretary Henry Paulson watched his financial-data terminal with alarm as one market after another began go haywire. Investors were fleeing money-market mutual funds, long considered ultra-safe. The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Companies would be unable to fund their daily operations. Soon, consumers would panic.
For at least a month, Mr. Paulson and Treasury officials had discussed the option of jump-starting markets by having the government absorb the rotten assets — mainly financial instruments tied to subprime mortgages — at the heart of the crisis. The concept, dubbed Balance Sheet Relief, was seen at Treasury as a blunt instrument, something to be used in only the direst of circumstances.
One day later, Mr. Paulson and Federal Reserve Chairman Ben Bernanke sped to Congress to seek approval for the biggest government intervention in financial markets since the 1930s. In a private meeting with lawmakers, according to a person present, one asked what would happen if the bill failed.
“If it doesn’t pass, then heaven help us all,” responded Mr. Paulson, according to several people familiar with the matter.
Read it all from the front page of this morning’s Wall Street Journal.
I have to admit that on Wednesday night I went to bed believing we were going to see a catastrophic world wide market collapse by Friday. I really think we dodged a big bullet here.
ICXC
John
This is an email I sent to Senator McCain this morning concerning this –
Dear Senator McCain,
I have to say that I fear Congress is being panicked into allowing the shoveling out of another trillion dollars by Mr. Bernanke and Mr. Paulson to the big financial institutions. It seems strange to me that Congress is just taking the word of these two individuals about what the situation is and what to do about it without demanding proof that the situation is this dire and that this is the only solution to it. Neither of these individuals is an elected official and Mr. Bernanke does not even represent the federal government and the people as he is Chairman of the Federal Reserve which is a private institution owned by a group of private banks. His loyalty is to them. Mr. Paulson is a Goldman Sachs man and a long time big Wall Street player. Perhaps it would be wise for Congress to do some serious investigating and verifying before allowing these two men to set up a new federal agency to shovel out a trillion more dollars in bailouts.
Senator McCain, I think if you’ll look around you’ll see that many reputable economists and financial figures even including individuals like Robert Reich, not exactly a conservative stalwart, are saying that this is a big mistake and not the way to go. Please step back and not allow yourself and Congress to be steam rolled. Verify and make sure that this extremely dire action is the only way to go. Also, one other factor that must be considered is that by running the printing press to pay for these trillions in bailouts you run the very real risk of totally destroying the value of the dollar which, in turn, will simply destroy the economy and the country. Not a pretty thought.
Please let suggest that you leave the campaign trail and go back to Washington to fight for the people on this. The people simply don’t need to be saddled with trillions of bailout debt for huge financial institutions. In fact, if you did this it will be the most effective campaigning you can do as the people will see you actually standing up and fighting for them and actions certainly speak louder than words. Thank you.
If the government can seize Fannie Mae, Freddie Mac and AIG, can it seize the $490 million that Richard Fuld absconded with?