FreeMktAdvocate

Krugman's Capital Injection Scheme: Nice Idea, Won't Fix Problem

Huh? The problem isn't capital it's liquidity? If that were the case then why didn't lowering interest rates to 2% fix the problem? Why did the bailout of Fannie, Freddie, AIG, Bear, et all occur? They collapsed due to massive capital needs that they weren't able to provide, not due to lack of financing. And although there is stress in inter-bank rates there is still financing available, albeit at higher rates. The problem with banks is solvency, not liquidity. This is why none of the Fed's measures have worked and why they are now resorting to massive capital injections by buying up the bank's bad assets.