Maybe a “Do Nothing Congress” is a good thing?
by Tom on September 29, 2008
in Market Musings, banks
This is probably the clearest and most concise reason for not only not passing the bailout but not considering it further……
The failure of the United States government to emerge as a willing buyer for hundreds of billions of dollars of toxic assets will accelerate the painful process of deleveraging, bringing with it more bank failures…..
The last week’s rescues of the banking industry’s two biggest problem children — Washington Mutual and Wachovia — offer hope that some combination of free-market capitalism and existing mechanisms for government assistance will provide solutions to the crisis…..
But the plan did not specifically address the root cause of the crisis — declining housing prices….
Yet there may be a way forward. Take the way government agencies engineered the rescue of Wachovia over the weekend. Citigroup is paying $2.1 billion for the bulk of Wachovia’s businesses and taking on its $700 billion in assets. These deals — along with JPMorgan’s acquisition of Washington Mutual in another F.D.I.C.-brokered deal on Thursday — show that willing buyers can be found for distressed institutions with the government mechanisms that are already available…..
Whether or not Mr. Paulson’s Tarp comes back to life, there will be more pain, particularly on Wall Street, but also on Main Street…..
As the credit spigot dries up further, it will be harder for companies to borrow and invest in their businesses, despite the Federal Reserve’s separate efforts to flood the system with money. It will cost more for consumers to mortgage their homes or gear up their car purchases. But the additional pain of living without the Tarp could be beneficial in the long run, if it brings more reliance on sound market principles.
Breakingviews.com – An Alternative to Armageddon – NYTimes.com.
