gabe borenstein

Why Friday Came Early

It is not the plan which is very effective .It is the news media and the columnists that misrepresent the context of the proposal.
The 700 billion is the total "stability"package.At this stage we can not quantify the actual cost.
By injecting liquidity into the financial sector ,we can stabilize economy and the markets .
Since the Treasury would buy the "collateral" at a premium ,that would free up additional reserves which the institutions had to maintain as they marked down the value of the collateral,creating additional liquidity.
Irrespective of the nominal size of the added liquidity to the system,the amount of stimuluos would be that amount times the multiplier(effect) which is approximately the factor of seven.
In other words if you inject into our system 700 billion dollars,the actual stimulous is 700 billion x7 = 4.9 trillion dollars .This will stabilize financial system and jump start the economy.
In addition,the value of the "collateral" bought by the Treasury would likely appreciate in value.
It is conceivable that under the circumstances,the
U.S economy would receive almost 5 trillion dollars of stimuluos at a minimal or no cost to the taxpayers.
This is a very effective package. Let's get the politics out of the way and get it done.