Q: If you’re going to cook up a plan, why not make sure it isn’t half-baked?
Most of the US government’s attempts to bring stability to the market so far have fallen between two stools, perhaps in a vain attempt to maintain a semblance of market normality but at the same time to achieve unprecedented intervention. There’s a simple rule: half-baked does not work.
Take the nationalization of AIG. The AIG bail-out had two separate elements: the Federal Reserve Bank of New York was authorized to lend AIG up to $85 billion. At the same time, the Treasury took control of AIG through an 80% stake (no one has quite explained why it did not take a full 100% stake, as was the case with Freddie Mac and Fannie Mae). As Daniel Gros and Stefano Micossi of the Centre for European Policy Studies say: “The Federal Reserve is thus providing finance to the US government. The punitive terms (850 basis points over Libor) agreed for the loan to AIG are irrelevant, as any interest payments would merely go from the left to the right hand pocket of the government.” Just a few days later, as the mounting total of commitments weighed on the Fed the realization that its own solvency was in some doubt, the central bank asked for a recapitalization from the Treasury.
Why Hank Paulson has failed as Treasury secretary
Q: If you know so much, why didn’t you see the crisis coming?
Q: Every time you’ve spent money, you’ve said it would solve the problem. What’s different this time?
Q: If you’re going to cook up a plan, why not make sure it isn’t half-baked?
Q: Why was the bail out plan as originally presented so desperately short on detail?