Paulson's Failure

Why am I not reassured by Hank Paulson's latest press conference?

"We're going to do it as soon as we can do it and do it properly and do it effectively and right," Paulson said. "Trust me, we are not wasting time; people are working around the clock to deal with this." ...

Responding to a question, Paulson said markets may "have some volatility for a while" and "this is about confidence."

I'm sorry, Hank, but the time for simply trusting you is long gone. You're right, this is about confidence, and, as Paul Kedrosky said today, "Paulson is rapidly losing whatever credibility he once had".

The G7 statement was vacuous and extremely disappointing: Was "we commit to continue working together" really the best they could come up with? They were very long on ends, and utterly lacking in means. Yes, everybody knows what has to be achieved. But unless and until there's a concrete plan to get there from here, markets are going to continue to unravel.

"Paulson sounds terrified," says Paul Krugman, and I can see why: He can't let Morgan Stanley (MS) fail, but he's not up and running yet on a bank recapitalization plan which could save it. Dani Rodrik says that unless the G7 manages to come up with something extra this weekend, "we are really toast" -- I'd certainly expect another one of those 700-point down days on the Dow, which seems to be the most-watched indicator at the moment, and TED widening out to 500bp.

When the history of this crisis is written, I suspect that two events will emerge as major errors, both of them involving Paulson in a central role: the decision to let Lehman Brothers default, and the failure to announce a coordinated rescue plan at the IMF meetings in Washington. We thought the man from Goldman Sachs (GS) would save us; instead, he's leading us to meltdown.

Comments

[icandoitdon:]

dumb (bernake) and dumber (paulson) have done nothing but fed the panic. feeding capital to these financial institutions has been discussed from the days of the phony/fraudie failure months ago and they've refused to consider it because the institutions didn't like it (dilution) and they were capitive to their wishes. shoving risk on taxpayers has been a losing argument from the get go and they should have known it.

as for the G7, it's every man for himself in a crisis. thats how it's always been. i'm not what they could do in any case other than agreeing to guarantee interbank lending. will that stem the panic?

the problem worldwide is overleverage....and the most overlevered of all is the good ole u s of a. banks won't lend because they aren't being paid enough to justify the risk of lending. that isn't going to change soon and when it does change, look for higher interest rates. the fed won't support that, of course, but the fed isnt' going to matter. the markets have made it clear that they're in charge...not the fed.

2008 Oct 11 10:39 AM

[solight:]

I wish Paulson would stop and breath for a moment. It seems like every time the market starts to show signs of heading back into positive territory The man makes another 'Doom' statement and says their going to come up with another plan that will fix it all.

As for Bernanke... He had a chance to deal with this issue when it was contained within the Subprime Security fallout, but he went the other way and stated that it wasn't likely to effect other markets. Now the Fed and the Treasury are trying to gain confidence by pumping an almost unlimited amount of money into the banks and then leaving it up to them (Libor) to get back to the business of lending...

None of us may care for the policies of Greenspan, but at least he knew how not to provoke people into panicking with horrible doom statements!

There are so many points to cover here that I should probably write a long article..

2008 Oct 11 01:11 PM

[Vigilance:]

Governmental interference and the Fed are what got it into this mess. Only a return to a free market could resolve it properly.

2008 Oct 12 08:42 AM

[Lilliana:]

How can Paulson have failed...he hasnt done anything yet...Dah.

2008 Oct 12 10:40 AM