Another step toward nationalizing the finance sector

Reactions to the Fed's plan to lend directly to businesses. Plus: Rachel Maddow interviews Paul Krugman.

Topics: Globalization, How the World Works, Federal Reserve, Wall Street, Rachel Maddow, Paul Krugman,

Some reactions to the new Federal Reserve plan to buy short-term debt (aka “commercial paper) directly from corporations that have been caught by the credit freeze:

Felix Salmon is “not convinced” that it “is necessarily a great idea.”

“I just wish that the policy response to this crisis was a bit more strategic and coordinated, rather than looking ever more confused, ad hoc, and panicked.”

Dean Baker recalls that last week, Hank Paulson told Congress that “there was no Plan B.” Except, apparently, there is.

Tyler Cowen:

They wouldn’t do it unless they had to. And if they had to do it, that they are doing it is very good news indeed.

But let’s give economist Nouriel Roubini, whose track record predicting the crisis looks better every single day, the last word, for now. Roubini spent last week savaging the Paulson plan as insufficient to the task, and called for a much more radical approach to addressing the credit freeze. Turns out, getting the Fed involved in the short-term lending market was one of his key proposals.

You Might Also Like

This action follows closely one of the radical policy options that I recommended last week: “Direct lending to the business sector from the Fed … to the non financial corporate sector. This could include Fed purchases of commercial paper from corporations and other forms of financing of the short term liabilities of the Administration to small businesses secured in appropriate ways. Given the collapse of the corporate [commercial paper] market and the banking system reluctance to provide loans to the corporate sector (credits lines are being shut down) the only alternative to the Fed becoming directly the biggest emergency bank for the corporate sector would be to force the banking system to maintain its exposure to the corporate sector, possibly in exchange for further Fed provision of liquidity to the banking system. The former option may be better than the latter to deal with the looming illiquidity of the corporate sector.”

I don’t know exactly what kind of portent is conveyed by the Federal Reserve’s decision to start following Nouriel Roubini’s policy prescriptions, but I sure wouldn’t have imagined it likely a year or so ago.

And in a slightly related note, I managed to catch Rachel Maddow interviewing Paul Krugman on her new MSNBC show last night. She asked some good questions, and got some good answers from Krugman, who is pretty clearly rattled by the state of the economy. The final analysis from Krugman: Eventually there will have to be some form of partial, likely temporary, nationalization of the financial system. He spoke before news of the Fed’s commercial paper gambit broke, but I think he would agree that this is just one more step toward that final resolution.

UPDATE: Felix Salmon, who once blogged under the auspices of Nouriel Roubini’s RGE Monitor, but who has been consistently critical of his extreme doom prognostications over the past two years, fulfills the true blogger’s credo today, and admits that Roubini was right.

“Nouriel was right, and I was wrong. The more apocalyptic you were, the more correct you were. And there were precious few people as apocalyptic as Nouriel.”

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails
    Martyna Blaszczyk/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 1

    Pond de l'Archeveche - hundreds thousands of padlocks locked to a bridge by random couples, as a symbol of their eternal love. After another iconic Pont des Arts bridge was cleared of the padlocks in 2010 (as a safety measure), people started to place their love symbols on this one. Today both of the bridges are full of love locks again.

    Anders Andersson/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 2

    A bird's view of tulip fields near Voorhout in the Netherlands, photographed with a drone in April 2015.

    Aashit Desai/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 3

    Angalamman Festival is celebrated every year in a small town called Kaveripattinam in Tamil Nadu. Devotees, numbering in tens of thousands, converge in this town the day after Maha Shivratri to worship the deity Angalamman, meaning 'The Guardian God'. During the festival some of the worshippers paint their faces that personifies Goddess Kali. Other indulge in the ritual of piercing iron rods throughout their cheeks.

    Allan Gichigi/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 4

    Kit Mikai is a natural rock formation about 40m high found in Western Kenya. She goes up the rocks regularly to meditate. Kit Mikai, Kenya

    Chris Ludlow/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 5

    On a weekend trip to buffalo from Toronto we made a pit stop at Niagara Falls on the Canadian side. I took this shot with my nexus 5 smartphone. I was randomly shooting the falls themselves from different viewpoints when I happened to get a pretty lucky and interesting shot of this lone seagull on patrol over the falls. I didn't even realize I had captured it in the shot until I went back through the photos a few days later

    Jassen T./National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 6

    Incredibly beautiful and extremely remote. Koehn Lake, Mojave Desert, California. Aerial Image.

    Howard Singleton/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 7

    Lucky timing! The oxpecker was originally sitting on hippo's head. I could see the hippo was going into a huge yawn (threat display?) and the oxpecker had to vacate it's perch. When I snapped the pic, the oxpecker appeared on the verge of being inhaled and was perfectly positioned between the massive gaping jaws of the hippo. The oxpecker also appears to be screeching in terror and back-pedaling to avoid being a snack!

    Abrar Mohsin/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 8

    The Yetis of Nepal - The Aghoris as they are called are marked by colorful body paint and clothes

    Madeline Crowley/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 9

    Taken from a zodiac raft on a painfully cold, rainy day

    Ian Bird/National Geographic Traveler Photo Contest

    National Geographic Traveler Photo Contest Entries

    Slide 10

    This wave is situated right near the CBD of Sydney. Some describe it as the most dangerous wave in Australia, due to it breaking on barnacle covered rocks only a few feet deep and only ten metres from the cliff face. If you fall off you could find yourself in a life and death situation. This photo was taken 300 feet directly above the wave from a helicopter, just as the surfer is pulling into the lip of the barrel.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>