Wednesday, March 25, 2009
The Trillion Dollar Question: Will protecting economic risk takers from themselves work as a national economic policy?
Will the federal government succeed in strengthening the economy by protecting risk takers? From the risk? They're taking? Martin Wolf, from The Financial Times, on the Obama administration's bank rescue efforts (a.k.a. bank nationalization):[W]ill it work? That depends on what one means by “work”. This is not a true market mechanism, because the government is subsidising the risk-bearing. Prices may not prove low enough to entice buyers or high enough to satisfy sellers. Yet the scheme may improve the dire state of banks’ trading books. This cannot be a bad thing, can it? Well, yes, it can, if it gets in the way of more fundamental solutions, because almost nobody – certainly not the Treasury – thinks this scheme will end the chronic under-capitalisation of US finance.HT: Calculated Risk
Labels: economics, Why Politicians Shouldn't be Running the Economy
