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View Diary: Carnegie Mellon Professor: No bailout needed (305 comments)

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  •  In a diary... (12+ / 0-)

    ...I just wrote, I had this to say:

    Ben has already shown us what the Fed can do, if it wants, when the Fed bought an equity interest in AIG.  This is something that it could and would do an unlimited number of times if that was what it thought was necessary to prevent a financial industry meltdown.  If the Fed wants, it can buy any amount of debt [or even equity] instruments that it wants in order to avoid disaster.

    It can do this with money that it creates out of thin air with a keystroke.  It does this all the time whenever it conducts Open Market Operations.  (That's when the Fed buys Treasury bonds to increase the money supply.)  There is no fund of limited size that it must tap in order to buy paper assets.  If Congress does nothing whatsoever in response the the Paulson/Bernanke request, the Fed would simply go ahead and intervene, all by itself.

    So the question we all need to start asking ourselves is why have we been hearing all this scary talk about how crucial it is for Congress to take URGENT ACTION?  It seems quite apparent to me that it was done to give the Financial Sector (=Republicans) political leverage.

    I suspect that an opportunity was seen---when it became apparent that Lehman Bros., Merrill Lynch, and AIG were in trouble---to use the startling news of the Fed's interventions to create a perception in Congress that a Taxpayer Bailout was absolutely necessary in order for Congress to save the nation from Financial Doom.  (Weren't they just a little too eager to sound the alarm bell?  I mean, for guys who are usually so concerned about statements that could incite panic?)

    Why would the Fed be willing to go along with this stunt?

    A Taxpayer Bailout is the preferred solution since it would spare the Fed a great deal of scrutiny; scrutiny that it would otherwise undergo if it were to continue to buy up the equity of private companies.  The Fed wants to continue to keep itself out of the spotlight; if it can get Congress to take on responsibility for the mess, all the better for them, and the banking industry as a whole, and the Republican Party as a brand.

    So this is all a political stunt, folks.  Democrats need do nothing more than position themselves politically in these weeks leading up to election day while taking their time to put together a REAL SOLUTION to the problem.

    •  The problem is that the Fed's (0+ / 0-)

      heading towards bankruptcy even faster than the rest of them, now that it's put these bad assets on its books.

    •  Doesn't this approach lead to US $$ devaluation? (0+ / 0-)

      I mean, the more you print, the less it's worth right?

      "The thought of his being president sends a cold chill down my spine." Republican Senator Thad Cochran on John McCain

      by Rumour95 on Wed Sep 24, 2008 at 03:20:59 PM PDT

      [ Parent ]

      •  At some point... (1+ / 0-)
        Recommended by:

        ...yes, it could.  It is not the best option available to us.  It's just that it is a stop gap measure that the Fed can get away with, if the choice is allowing the meltdown or not.  In a way, it continues to raise the stakes. The important thing for Dems to understand is that we are NOT only days away from a complete collapse of the economy, as the Republicans are alleging...

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