Tuesday, October 14, 2008

Sentences that scare me

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Mr. Paulson said, who offered some details of the plan along with the Federal Reserve chairman, Ben S. Bernanke, and the chairman of the Federal Deposit Insurance Corporation, Sheila C. Bair. [sic-- should be "said Mr. Paulson, who..."]

If the bailout were working properly, no exhortation or bully pulpit would be required-- right? The banks would think that it was again in their interest to make short-term commercial loans. This has been one of my worries for a while now-- that we were deploying backward-looking tools to solve a problem of forward-looking incentives. If the banks say, "thanks for the new funds; they'll look lovely on our balance sheet!" then nothing productive has happened; the taxpayers have just propped up the stock price of financial firms.