Friday, October 3, 2008

New Era "panic" for Bail Out Plan off target

...Certain market players agree that giving [Treasury Secretary] Paulson "$700 billion in small unmarked bills in a paper bag" as one BBC commentator referred to it may not be the best way to deal with the crisis. Friday’s Federal seizure and sale of Washington Mutual and Monday’s Fed brokered sale of Wachovia to Citigroup clearly demonstrates the Fed’s determination to ensure the orderly sale of failing banks in a manner that protects depositors and minimizes disruptions to financial markets.

By guaranteeing "toxic assets" only to the extent it is necessary to facilitate the sale of failing banks to ones with stronger balance sheets, i.e. on a case by case basis, the Fed can minimize the impact of what essentially amounts to a massive consolidation of the US banking industry on financial markets without turning the free market system on its head.