The frantic measures they have been taking are surely outdoing the Hoover-Roosevelt interventions that were ineffective and did not terminate the prolonged depression of the 30´s. Will all this work? Is the artificial creation of liquidity the otros 2solution, as President-Elect Obama promised on Dec. 2: “We´re going to be putting money in people´s pockets, so that they can spend……” The Tax Rebates of 165 billion failed to spark the economy. Will the proposed influx of 8.5 trillions salvage the potholed balance sheets of Wall Street or end the continuing downward pressure on home prices or get customers back to the market? What has priority: stabilize the market or reduce foreclosures? Will investors abandon the security (?) of their newly acquired government bonds and flock back to their haven on Wall Street?
A brief review of what has been done so far: First came the Troubled Asset Relief Program of $700 million. It was originally planned to buy up worthless mortgage-backed securities. Then, without a change in name, it metamorphosized into investing cash and buying securities in troubled banks with, for some examples, starting with 30 billion in March for JP Morgan-Chase to rescue Bear Stears, then 200 billion more to Fannie Mae and Freddie Mac which were seized on Sept 8, then 85 billion for American International Group, the largest insurer of banks and more for Washington Mutual, the largest savings bank, then supposedly with $306 billion in assets with $207 billion in mortgages, many of them subprime. Another $249 billion was absorbed to prop up Citigroup Then to bolster the Federal Deposit Insurance fund another $5 billions of debt (July 7, 2008). With socialistically fragranced novelties like the Central Bank auctioning reserves at the discount window (Dec. 12, 2007) or buying up commercial paper (Sept.8, 2008) or “investing” in preferred shares of private institutions ($85 billion, October 22). As if this were all. The next brainstorm was to bail out the big three automakers (since seemingly rejected) accompanied by $300 billion in refinancing mortgage holders, and yet another $176b to fund State rescue programs, and possibly more to evaporate consumer debt. Wall Street is sure soused with liquidity!!! And the totals and the proposals are surging upwards day by day. And pray tell, “what about the “issues that had not been addressed?”
The free market also came in to lend a hand: as with Bank of America buying up Merrill Lynch and Warren Buffet investing $5 billion in Goldman Sachs (Sept. 25) Certainly, Milton Friedman´s accusation that the Fed was asleep in 1930 cannot hold water today, with the remedies already proposed rising up to over $8.5 trillion dollars, with Nobel Laureate Paul Krugman saying “I´m still not sure….whether the economic team is thinking big enough” and that the limit could rise to ten trillion.
