Great piece in the NY Times discussing what spooked the powers that be so much that they decided they needed to release the “Paulson Plan”:
This is what a credit crisis looks like. It’s not like a stock market crisis, where the scary plunge of stocks is obvious to all. The credit crisis has played out in places most people can’t see. It’s banks refusing to lend to other banks — even though that is one of the most essential functions of the banking system. It’s a loss of confidence in seemingly healthy institutions like Morgan Stanley and Goldman — both of which reported profits even as the pressure was mounting. It is panicked hedge funds pulling out cash. It is frightened investors protecting themselves by buying credit-default swaps — a financial insurance policy against potential bankruptcy — at prices 30 times what they normally would pay.
It was this 36-hour period two weeks ago — from the morning of Wednesday, Sept. 17, to the afternoon of Thursday, Sept. 18 — that spooked policy makers by opening fissures in the worldwide financial system.
Read the whole thing. For my part, I am still unsure what I would do were I in Congress, but hopefully they have more information that I do. I am completely sold on the notion that something has to be done to ease up the credit markets, but I do not know what can be done or how effective the current plan would be. I would also be lying if there was not at least a part of me that still felt the only way to rebuild the system is to let all the fires burn out.
But then again, that is why I just write a blog.
*** Update ***
Part of the problem is that the powers that be have done a pretty terrible job explaining why something needs to be done. The best explanation that I have seen so far is this clip from Bill Clinton:
The whole thing is worth watching, but the part on the credit crisis starts at 1:58.