Al Capital

Cat Fight at the Fed

The under-capitalization in the financial sector alone requires a $3 trillion backstop in order to facilitate a mild stabilization in 2010. If you factor in the Federal Reserve's other mandate to minimize unemployment, another $1 trillion is needed before 2010. In other words, the most conservative actions, ie excluding any effective economic stimulus, will cost about $4 trillion over the period 2008-2010. The effect to the economy had the Fed not acted is not easily quantifiable, but probably would include the permanent crippling of the U.S. financial sector and chaos in international exchange rates and trade.