Another weekend has come and gone and yet another rescue has been put into place. While Secretary Paulson’s new “RTC” like proposal may seem like just another rescue in a long line of dramatic rescues, bailouts and deal makings this summer it represents a proactive step in bringing an end to the credit crunch and its many symptoms. The proposed $700 billion bailout is the right plan for the right time and I hope that lawmakers move swiftly to enact it.
The fact of the matter is that no other option had a legitimate chance at brining about an orderly resolution to the profound risk of systematic financial collapse. When financial markets cease to function they cannot be relied upon to solve the issues that they were built to resolve. While noticeable pressure was brought onto the credit market by the failure of Lehman, the sale of Merrill and the near failure of AIG the most dramatic impact of their failure and near failure was the fear that they instilled on Wall Street, Main Street & around the world. This fear, coupled with the impact that their respective demises had on the credit markets put extreme pressure on money markets funds, and the inability of select few to hold up as advertised caused gargantuan outflows and threatened the ability of businesses large and small to conduct their operations. Had the run on the money market funds continued, their forced sale of illiquid and liquid credit securities in markets that was previously frozen would have led to a system wide collapse that would have moved the crisis on Wall Street to the door step of every American.
The government bailout fund, while having noticeable risks, is the best option available at this point and the only one that can be relied upon to speed our nations economic recovery. In attempting to radically speed up the bailout we will hopefully avoid a decade lost to financial reorganization. While I rarely say this about anything the Bush administration does, I am truly impressed by their realization that our country needs proactive solutions instead of reactive responses. We live in a world where we cannot be limited by dogma and ideology. Secretary Paulson, Chairman Bernanke & the Bush administration have realized this and we should all be thankful. In my article on moral hazard and the bailout of Lehman Brothers I expressed a deep frustration that the Bush Administration was not doing enough to save our financial system and our way of life, I would now like to just take a moment to applaud these men for their foresight and their move away from reactive responses to this financial crisis.
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