Wednesday, October 08, 2008

Policy blunders

At this juncture, it's worth pointing out that not only has the US not re-capitalized financial firms in return for equity stakes (apparently never having heard of the expression "nothing for nothing") but they have also failed to start sifting the wheat from the chaff. Headlines make us think otherwise, but not all financial institutions are in distress, there are good actors out there as well as bad, but so far the Fed's actions have been to broadly support the market as a whole, and Goldman Sachs in particular. The problem is not confined to the US either. An excellent synopsis by Yves on the poor quality of government interventions to date is here.

(Also, I recommend the comment thread on Arnold Kling's post on monetary institutions. Excellent discussion on maturity transformation, the difference between asset bubbles and credit bubbles, and the difference between liquidity risk and solvency risk.)

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