WHEN YOU HAVE A CRISIS OF CONFIDENCE...:

Paulson plan could cost $1 trillion (MIKE ALLEN, 9/19/08, Politico)

Stock markets soared around the world in anticipation of the rescue, with British and Chinese indexes recording their biggest gains ever.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC’s “Good Morning America” said lawmakers were told last night “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally.”

“What you heard last evening is one of those rare moments — certainly rare in my experience here — was that Democrats and Republicans decided we needed to work together, quickly,” Dodd said.

The solution being proposed by the Bush administration is the most expensive bailout in the nation’s history, sharply curtailing the ability of the next president to push for tax cuts or new spending.

Congressional leaders tell Politico that to expedite the rescue, Treasury plans to seek additional authority rather than creating a new entity. The plan involves buying up hundreds of billions of dollars in bad mortgages to take them off the books of financial institutions that otherwise might fail.

Washington's Trillion Dollar Wall Street Bailout (James Pethokoukis, 9/18/09, US News)

It now looks like Uncle Sam will create a new entity to take hundreds of billions of bad debt off the books of America's major financial companies. (Look for this to get done before Election Day, if not early next month.) "This is a gigantic step forward, the only way to fix the crisis," writes Ian Shepherdson, economist at High Frequency Economics. "Economy still a mess, but systematic risk way down." [...]

Is a bailout necessary?

Look, the financial system probably couldn't take another week like the one we just went through. Stocks plunging, credit markets freezing. As economist Robert Brusca puts it, "The proposed US government rescue plan comes at the end of a week of almost unprecedented turmoil on world financial markets amid a crisis of confidence in banks."

The government had to get ahead of the curve and quit reacting on a case-by-case basis. If you look at banking crises in Japan and Sweden, for instance, all roads eventually led to a government bailout with taxpayer money at risk. The rule in these cases seems to be the sooner, the better. If you want more evidence, markets around the world and here in the United States are soaring on this news. Strategist Richard Bernstein of Merrill Lynch, in a research note, says the bailout plan is "an opportunity for the government to solve the on-going problems through one system-wide solution."

...you need a big showy step to restore confidence. To bad we can't do something similar about Islamicism.

Posted by Orrin Judd at September 19, 2008 10:44 AM