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Paul Krugman NY Times

On Sunday, Henry Paulson, the Treasury secretary, tried to draw a line in the sand against further bailouts of failing financial institutions; four days later, moncler outlet faced with a crisis spinning out of control, much of Washington moncler outlet woodbury appears to have decided that government isn’t the problem, it’s the solution. The unthinkable a government buyout of much of the private sector’s bad debt has become the inevitable. Skip to next paragraph

The story so far: the real shock after the feds failed to bail out Lehman Brothers wasn’t the plunge in the Dow, it was the reaction of the credit markets. government debt, which is best moncler jackets still perceived as the safest of all investments if the government goes bust, what is anything else worth? was snapped up even though it paid essentially nothing, while would be private borrowers were frozen out. Treasury bills. But Thursday morning, the average interest rate on three month interbank borrowing was 3.2 percent, while the interest rate on the corresponding Treasuries was 0.05 percent. No, that’s not a misprint.

This flight to safety has cut off discount moncler jackets credit to many businesses, including major players in the financial industry and that, in turn, is setting uk moncler outlet us up for more big failures and further panic. It’s also depressing business spending, a bad thing as signs gather that the economic slump is deepening.

And the Federal Reserve, which normally takes the lead in fighting recessions, can’t do much this time moncler outlet sale because the standard tools of moncler sale monetary policy have lost their grip. Usually the Fed responds to economic weakness by buying up Treasury bills, in order to drive interest rates down. But the interest rate on Treasuries is already zero, for all practical purposes; what more can the Fed do?

Well, it can lend money to the private sector and it’s been doing that on an awesome scale. But this lending hasn’t kept the situation from deteriorating.

There’s only one bright spot in the picture: interest rates cheap moncler sale on mortgages have come down sharply since the federal government took over Fannie Mae and Freddie Mac, and guaranteed their debt. And there’s a lesson there for those ready to hear it: government takeovers may be the only way to get the financial system working again.

Some people have been making that argument for some time. Most recently, Paul Volcker, the former moncler online store Fed chairman, and two other veterans of past financial crises published an op ed in The Wall Street Journal declaring that the only way to avoid „the mother of all credit contractions” is to create a new government agency to „buy up the troubled paper” that is, to have taxpayers take over the bad assets created by the bursting of the housing and credit bubbles. Coming from Mr. Volcker, that proposal has serious credibility.

Influential members of Congress, including Hillary Clinton and Barney Frank, the chairman of uk moncler sale the House Financial Services Committee, have been making similar arguments. And on Thursday, Charles Schumer, the chairman of the Senate moncler womens jackets Finance Committee (and an advocate of creating a buy moncler jackets new agency to resolve the financial crisis) told reporters that „the Federal Reserve moncler sale online and the Treasury are realizing that we need a more comprehensive solution.” Sure enough, Thursday night Ben Bernanke and Mr. Paulson met with Congressional leaders to discuss a „comprehensive approach” to the problem.

We don’t know yet what that „comprehensive approach” will look like. There have been hopeful comparisons to the financial rescue the Swedish government carried out in the early 1990s, a rescue that involved a temporary public takeover of a large part of the country’s financial system. It’s not clear, however, moncler outlet prices whether policy makers in Washington are prepared to exert a comparable degree of control. And if they aren’t, this could turn into the wrong kind of rescue a cheap moncler jackets mens bailout of stockholders as well as the market, in effect rescuing the financial industry from the consequences of its own greed.

Furthermore, even a well designed rescue would cost a lot of money.

But it’s no use whining (sorry, Senator Gramm) about the prospect of a financial rescue plan. political system isn’t going to follow Andrew Mellon’s infamous advice to Herbert Hoover: „Liquidate labor, liquidate stocks, liquidate the farmers, moncler usa liquidate real estate.” The big buyout is coming; the only question is whether it will be done right.

Warren Buffett Pessimistic About Economy 6 25 08 AP The Oracle of Omaha says head for the bomb shelters! OMAHA, Neb. economy is in a recession, and now he says the economy is getting worse. Buffett told CNBC in a live interview Wednesday that all the data he sees from Berkshire Hathaway Inc. subsidiaries shows the economy weakening. „Everything connected moncler sale outlet with construction and with consumer, I see weakness, and if anything, it’s accentuating a little bit.” Buffett also said he thinks inflation is picking up, especially in steel and oil, so it should be a concern for the Federal Reserve. At the same time,Wall Street was making it easier for buyers to get loans. It was really transforming the mortgage business from a local one, centered around banks, to a global one, in which investors from almost anywhere could pool money to lend. „The competition brought down mortgage fees and spurred innovation, much of which was undeniably good. Why should someone who knows that they’re going to move after just a few years have no choice but to take a 30 year, fixed rate mortgage? „As is often the case with innovations, though, there was soon too much of a good thing. Those same global investors, flush with cash from cheap moncler jackets womens Asia’s boom or rising oil prices, demanded good returns. Wall Street had an answer: subprime mortgages. „Because these loans to to people stretching to afford a house, they come with higher interest rates even cheap moncler jackets if they’re disguised by low initial rates and higher returns. Once bundled, different types of mortgages could be sold to different groups of investors. „Investors then goosed their returns through leverage, the oldeststrategy around. They made $100 cheap moncler coats mens million bets with only $1 million of their own money and $99 million in debt. If the valueof the investment rose to moncler uk outlet just $101 million, the investorswould double their money. „All these investments, of course, were highly risky. Higher returns almost always come with greater risk.” March moncler outlet store 18 The Dow was up 420 points or 3.5% on the expectation of a big Fed interest rate cut. The Fed cut it’s short term rate by 3/4 point, the highest single day cut in a long time.

Some had expected a full point cut. It will be interesting to see what the stock market does

March 18 The failure of Bear Stearns and its rescue by the Fed and JP Morgan Chase may well be the first rather than the moncler outlet online last bank failure. The market is up today, but it’s not clear at all that the worst is over. There is a good possibility of more bad news to come. The NYT article by by Vikas Bajaz and Louise Story is linked below.

A headlined article on the NYT front page of the business section reads „Bad Bets and Accounting Flaws.