Monday, March 9, 2009

Dithering on the Edge of the Abyss

Geithner's Charade


"......The problem with the TALF is that it ignores the new economic reality, that consumer demand has collapsed from the massive losses in home equity and retirement accounts. When credit markets froze last year, housing values dropped sharply raising havoc with household balance sheets and forcing a radical change in spending habits. That cutback in spending created a negative feedback loop to the financial sector which made it impossible to re-inflate the credit bubble. The ultimate size of the financial system will be determined, to a large extent, by the capacity of people to borrow again, which depends on many factors including job security, savings, and optimism about the future. Needless to say, the growing worry over a 1930s-type Depression will not help to lift spirits or improve the chances for a speedy recovery. That said, there are positive steps the administration can take now to restore confidence in the markets. These measures fall under three main headings; debt reduction (forgiveness), regulation and accountability. Confidence is not built on inspiring oratory or personal charisma, but concrete actions to reestablish a rules-based system that penalizes crooks and fraudsters. Recovery isn't possible without a strong commitment to these basic changes. "

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