The party's over. As the economy fizzled out and the housing bubble burst, champagne sales fell 2.6 percent in the first half of this year, compared with last year. It's the first time sales of bubbly have declined since 2000, according to the Comité Interprofessionnel du Vin de Champagne. In the United States, sales fell 22 percent in the first half of 2008.
There are at least a couple of places where people are still heartily toasting success, however: Russia, where champagne sales increased 158 percent last year, and China, which had a 74 percent increase amid the growing popularity of wine there.
A worker walks past a pile of damaged bricks to be crushed at the world-famous Accrington Nori brick factory in England on Oct. 16, 2008. The brickyard is to close in two weeks with about 80 jobs to be lost. A spokesman for parent company Hanson attributed the closure to the housing slump, saying the firm's output has fallen 40 percent in the past six months. If the market eventually improves, the factory might one day reopen.
Famous for being superstrong, Nori bricks ("Nori" is "iron" spelled backward) were used to construct the foundation of New York's Empire State Building.
Economic development blogger Chris Blattman has posted an interesting interview with Raymond "Ray" Fisman and Edward "Ted" Miguel, authors of "How Economics Can Defeat Corruption" in the September/October issue of FP:
[Chris]: Economists are fond of saying that strong institutions are at the heart of American economic growth. I say they should watch 'Gangs of New York' -- Scorsese makes Lagos and Nairobi look like kindergarten by comparison. Do we underplay violence and corruption in our own history, and overplay it in Africa today?
Ted: Yes, we could easily have written a book about violence and corruption in 19th century America or Europe. And there are surely lessons to be learned about present-day problems from looking at that earlier era, and vice versa.Ray: But there are some highly instructive differences. In the 1970s, Sierra Leonian President Siaka Stevens destroyed the railroad in his country's southeast as a means of weakening an opposing ethnic group, the Mende. Contrast this with the equally corrupt robber barons of 19th century America, who used their power to build railways instead of tearing them down.
Fisman and Miguel have also started a promising-looking blog on the site for their new book, Economic Gangsters: Corruption, Violence, and the Poverty of Nations, on which their FP article was based.
Is it just me, or does French President Nicolas Sarkozy sound a little like Gollum in this quote about a planned summit to restructure the world's financial architecture?
Europe wants the summit before the end of the year... Europe wants it. Europe demands it. Europe will get it."
We wants it! In all seriousness, smart people have been saying for a long time -- way before the current mess -- that the framework put in place at Bretton Woods in 1944 is woefully obsolete.
But I'm not sure that Sarko, an old-school economic nationalist in liberal clothing, is the guy I'd want leading the charge. And how much confidence would Americans have in any decisions George W. Bush makes at this point? My take: it would be better to leave any grand, sweeping changes to No. 44.
How many generals would put meeting with development and finance experts as one of the top items on their to-do list?
My guess: not many. Which makes Gen. David Petraeus, who is gearing up to take the reins at Central Command later this month and putting together a 100-day review of U.S. strategy in the region, all the more impressive.
In what I see as a very encouraging sign, Petraeus reached out to officials at the World Bank and the International Monetary Fund last week, Bank President Robert Zoellick reportedly among them. A source close to the general told Reuters that the meeting's purpose was "to touch base and note the Central Command's interest in supporting comprehensive approaches in Pakistan, Afghanistan, and others."
FP's Elizabeth Dickinson spoke with economist Jeffrey Sachs this week about how the financial crisis will affect the world's poorest.
Surprisingly, Sachs doesn't think the mayhem on Wall Street necessarily spells doom for people living in low-income countries. It's middle-income countries, which are more connected to the global economy, that are most at risk.
His biggest worry? That the credit crunch will distract leaders from the "life-or-death" issues that affect the poor on a daily basis.
Do we need another secret intelligence assessment to tell us that Pakistan is falling apart?
If anything, that country's slow-motion collapse been reported to death over the past several months. Nonetheless, it's reassuring that the situation there is getting high-level attention in Washington.
Much has been made of Pakistan's troubles with terrorists and tribal militants, and there are lots of good ideas out there for how to address them. Less discussed? The country's economic meltdown.
As Fasih Ahmed reports for Newsweek, Pakistan's economy is in "free fall." The country's credit ratings are being slashed; creditors are making runs on banks; inflation is soaring; and capital is fleeing. If things continue to get worse, we may come to find that -- while the two issues are certainly related -- the global financial crisis did to Pakistan what the terrorists never could.
As I sip my coffee this morning, the Financial Times has given me new reason to appreciate my Robusta roast. Stung by the falling price of coffee, exporters -- particularly Southeast Asian exporters like Vietnam and Indonesia -- have started hoarding their stocks. Other big exporters, such as Colombia and Brazil, also look worried.
The coffee industry took a quick and nasty turn when markets fell last month and credit froze up. Traders found it harder to get credit to buy supplies, so demand -- and prices -- plummeted. Prices for Robusta have fallen anywhere from 20 to 40 percent in just two months. Some say the problem is less hoarding than the fact that traders are purchasing cautiously small sums at a time.
That's bad news for my wakeup call. Before the crash, the United States imported over 2 million 60kg bags of coffee in just 5 months. It's even worse news for the farmers whose crops are now worth less. Coffee plants don't produce beans for two to three years after planting -- meaning the newest converts to the crop are the hardest hit; their first payoffs are naught.
That could be hard to swallow.
Too many bank failures and bailouts to keep track of as the financial pandemic makes its way around the globe? Try this new interactive global credit crisis map from Reuters, which shows countries that have been impacted and what measures they've taken in response:
This week both presidential hopefuls are highlighting changes to their respective economic agendas in what's looking more and more like tug of war over the middle class.
McCain, who's trailing on the economy, served up a few new slices of his revamped economic plan to a charged audience earlier today in Blue Bell, Penn.
In an impassioned speech, McCain declared that Wall Street's days of concealing liability from the public are over and then promised to order the department of treasury to guarantee all savings accounts for the first six months of his presidency and eliminate all taxes on unemployment benefits.
But peppered in with those shiny offerings were more familiar leftovers, like the proposed one-year spending freeze and vows to reach across the aisle to control spending. McCain also criticized Obama's refurbished plan as "reckless" and an "invitation to capital flight."
For his closing remarks McCain made what seemed like an odd and clumsy transition to his tried-and-true POW narrative in a talk about economic reform. He told the crowd he knows well the feel of fear and hopelessness and called upon the American people to fight.
Don't give up hope. Be strong. Have courage. And fight.
Fight for a new direction for our country.
Fight for what's right for America.
Fight to clean up the mess of corruption, infighting and selfishness in Washington.
Fight to get our economy out of the ditch and back in the lead....Stand up, stand up, stand up and fight. America is worth fighting for. Nothing is inevitable here. We never give up. We never quit. We never hide from history. We make history...."
But fight whom or what exactly? Wall Street? Mortgage lenders?
When it comes to mastering the terms and truths of what's evolved into an incredibly messy dialogue on the failing economy in a way that translates across the board to confused and worried voters, both candidates have a long way to go. McCain hardly closed the gap with today's latest punt. And tomorrow's debate is going to make for a terribly long evening if both candidates continue to pin their solutions on the jargon of their old, or newly amended, economic plans.
Along with many other aspects of customer service, U.S. debt collection has been outsourced to Indian call centers. As Emily Wax reports in a great piece for the Washington Post, the collection agents, who adopt fake American names and accents when talking to customers, have a unique perspective on the U.S. mortgage meltdown:
The subculture of call centers tends to foster a cult of America, an over-the-top fantasy where hopes and dreams are easily accomplished by people who live in a brand-name wonderland of high-paying jobs, big houses and luxury getaways.
But collection agents at this call center outside New Delhi are starting to see the flip side of that vision: a country hobbled by debt and filled with people scared of losing their jobs, their houses and their cars.
"Lately, 25-year-old Americans are telling me that they are declaring themselves bankrupt," said Chaturvedi, raising her eyebrows in shock. "These days the situation is so emotional, so fragile. We have to have so much empathy and patience."
"It's like people are totally drowning," said Omkar Gadgil, 24, who goes by the alias Richard Rudy and was a math major in college. He is brainy and considered the office expert on the intricacies of debt collection. "There has just been years of overspending and now: the crash."
In the past, debt-saddled customers were often annoyed by Chaturvedi's calls from the open-air office at Aegis BPO Services. But now they seem depressed, defeated. Even the men sob into the phone, several agents said.
Sadly, I have a feeling that these customers would be pretty enraged if they realized where the sympathetic voice on the phone was coming from. In moments of severe economic distress, people tend not to marvel at the wonders of globalization.
Paul Krugman the economist died a long time ago; the man named Paul Krugman is a public intellectual,'' Luskin, a contributing editor for National Review Online, said in an interview. "He is not in the same category as John Maynard Keynes, he is in the same category as Oprah Winfrey. To give it to him is to dishonor the Nobel Prize."
You'd think that a guy who published a piece in the Washington Post entitled "Quit Doling Out That Bad Economy Line" on Sept. 14, the day before Lehman Brothers declared bankruptcy, might be a little more circumspect in his public comments.
The Princeton economist and New York Times columnist was being coy. Turns out he won the Nobel Prize for his work on strategic trade theory and economic geography. Matt Yglesias wonders if Krugman is the first blogger to win a Nobel. Good question. I don't suppose Gary Becker counts, since his 1992 prize predates the Becker-Posner blog by nearly 12 years.
The Marginal Revolution guys are all over this. Here's Tyler Cowen's exhaustive summation of all things Krugman, and his colleague Alex Tabarrok has a useful primer on Krugman's contributions to trade theory. It's must-reading for those who know Krugman only for his left-leaning Times columns.
As Cowen notes, the timing of Krugman's award, like Al Gore's Peace Prize last year, is going to be interpreted as a public attack on the policies of the Bush administration. Krugman's politics aside, he's part of the growing trend (which includes Cowen and Tabarrok) of economists writing and blogging for a mass audience. As someone who's continually fascinated, but frequently perplexed by the dismal science, it's good to see this trend rewarded.
Then again, who cares about the Nobel Prize, anyway?
Need an even greater economic catastrophe to keep your mind off the financial crisis? How about the rainforest crunch?
According to a report by the European Union commissioned study, The Economics of Ecosystems and Biodiversity, deforestation is costing the world up to five times more than the financial crisis figures (so far) -- between $2 and $5 trillion a year.
Sound like a stretch? As FP likes to say, "think again." Forests provide a plethora of "services," such as carbon dioxide absorption, erosion prevention, and biodiversity (which, in the most selfishly pragmatic evaluation spells out new medicines, new food sources, and eye candy). So if the forests disappear, we'll have to find a new way to pay for -- or live without -- those kinds of services. The price tag is basically impossible to estimate (though leave it to the EU to try) but certainly huge.
A second phase of the study will be completed by 2010. If things keep going the way they have been for the last couple of days, the financial crisis might just have time to catch up.
As the global economy implodes, two items have been selling well in Britain:
1. Safes. Stocks are crashing; banks are failing. "Home may increasingly be where the cash is," CNN reports. One British safe salesman says sales of safes have been up as much as 45 percent in the past two to three months.
2. Luxury chocolate. Selfridges, a British department-store chain, says its sales of premium chocolate are "breaking all records." Sales of the ultimate comfort food have increased 20 percent in the past four weeks. This week Selfridges launched "Credit Crunch," a treat of Valrhona chocolate coated over honeycomb.
If a stock market falls, but no one hears about it, did it really happen? That seems to be part of the Kremlin's strategy for addressing Russia's jittery economy. The Moscow Times' Anna Smolchenko reports that state television channels have been instructed to downplay the severity of the financial meltdown:
The main channels have either downgraded or ignored altogether Russia's financial turmoil since it began in mid-September, according to media monitoring companies and research by The Moscow Times. On Monday, for instance, none mentioned the meltdown in Russia or any possible repercussions from the crisis. Only the smaller Ren-TV and Zvezda channels mentioned the stock plunge, according to Medialogia, a private company that tracks the media. [...]
The Kremlin recently instructed both state and privately owned television channels to avoid using words like "financial crisis" or "collapse" in describing the turmoil in Russia, said Vladimir Varfolomeyev, first deputy editor at Ekho Moskvy radio.
"Specifically, the blacklist includes the words 'collapse' and 'crisis.' It recommends that 'fall' be replaced with the less extreme 'decrease,'" Varfolomeyev said in comments posted on his LiveJournal blog late last week.
The media blackout is similar to those employed during the Beslan school massacre of 2004 and the sinking of the Kursk submarine in 2000. When TV channels have mentioned the crisis, it has been in the context of American and European financial woes, such as President Dmitry Medvedev's speech yesterday which blamed the crisis on the U.S. "unipolar economic model."
With surprising candor, Kremlin PR reps say they're just trying to prevent public panic and point out that anyone who actually wants to hear about the crisis can read about it online or in more upscale newspapers. But when the fallout from Wall Street inevitably hits Russian main street, a lot of folks are going to be wondering what hit them.
Read my February 12 steps to a financial disaster paper. We are now as I predicted at step 12
Sorry if I now say I told you so...
Feeling a little chastised for giving me so much s--t on your blog for the last year and siding persistently with those who missed the boat and said all wil be fine? Should I expect a public mea culpa?
It would be useful if you would publicly admit you got it totally wrong for the last year.
For the record, no one can accuse FP of blowing off Roubini. The RGE Monitor chairman wrote a cover story on "The Coming Financial Pandemic" for our March/April issue and a Web exclusive on why "a financial meltdown is more likely than ever" exactly a year ago.
Capitol Hill seemed like the center of the universe last night as U.S. senators scrambled to save U.S. workers, students, and Joe Sixpack from financial disaster. But what about the other constituents of America's economic domain? I'm talking about other countries. How have they reacted to this spiraling crisis? Let's take a look at a few major players:
I use a 1-5 scale to indicate how urgent the crisis is for a country -- 1 means not at all concerned, and 5 represents hair-on-fire panic.
Japanese Finance Minister Shoichi Nakagawa is not worried:
I understand that the impact (of the financial crisis) on the Japanese economy is very small compared to that in the
U.S.and Europe," Nakagawa said. "I expect the Japanese markets to undergo a thorough risk analysis and act calmly."
While the government of the world's No.2 economy is closely monitoring the situation and does urge swift approval of a bailout by the U.S. Congress, some also believe the crisis is a golden opportunity for Japanese banks to expand their international influence. Nomura Holdings has already picked up Lehman Brothers' Asia operations and Mitsubishi UFJ Financial Group is slated to become Morgan Stanley's largest shareholder. Japanese banks will probably be on the prowl for more good deals.
Continental Europe (4)
There would be something comical, even pleasurable, in watching the frenetic agitation of the banking world," wrote Laurent Joffrin, editor of Libération newspaper, “if millions of jobs were not at stake, not to mention the economic balance of the planet.
"Schadenfreude" is on everyone's lips, of course in Germany, but especially in France, as the above comments, quoted by The Economist, show. Sentiments are deeply conflicted though. Political leaders feel vindicated about the misgivings they've held about "Anglo-Saxon" free markets, but are struggling to contain knock-on effects from the U.S. crisis since European markets are so tightly intertwined with those of the United States.
For French President Nicolas Sarkozy, "the idea that markets are always right was a mad idea." But he has personally striven to promote more competition in France and is likely to pursue regulatory reform, rather than a rollback of market liberalizations.
With a string of bank failures, a gummed up credit market, and housing woes of their own, British authorities are moving to ensure financial stability at home, but are also looking to Washington for leadership. Deposit insurance has been upped from £35,000 to £50,000. David Cameron, the opposition leader, ended his attacks on Labour's economic policies and vowed that American-style partisan strife would not catch on across the pond.
Chinese Premier Wen Jiabao says he's very "concerned" about the U.S. crisis and that China should "make a foothold in expanding domestic demand." Since China's economy relies so much on exports, its growth rate could take a hit if demand from U.S. consumers slows. Not to mention the sizeable stakes its sovereign wealth fund has in Blackstone, the $119 billion private equity fund, and (former) investment bank Morgan Stanley. So, there's one reason why the Chinese government may be very interested in a bailout of U.S. financial firms.
All of these countries are eagerly waiting to see if the proposed U.S. bailout will pass the House this week. Whether the U.S. financial juggernaut can stage a comeback and lend some degree of stability to markets will have a huge impact on how countries around the world proceed.
One of the odd paradoxes of the financial crisis is that, even though it began in the United States, the dollar is actually a beneficiary of the chaos. Why's that? Because investors still see Treasury bills as the safest harbor in a financial storm, which is why yields have been pushed so low.
George Mason economist Tyler Cowen weighs in further with an interesting point about China, which holds hundreds of billions of U.S. dollars:
As for this country, the Chinese now regard us as "battle tested." We have been through some truly major bumps, yet no major U.S. politician has called for "not paying back the Chinese." We've even guaranteed the $350 billion in agency securities held by the Chinese central bank and without a stir. I think the Chinese are shocked by that and in many ways they now trust their investments more than before, not less. [...]
Bush, Bernanke, Paulson -- we call them leaders. The Chinese think of them as the customer service department. I suspect the Chinese get straighter answers from them than we ever do.
Welcome to the Bad Credit Hotel. You might, at first, be spooked by the Halloween-ish music that greets you like a haunted house -- with an ominous voice-over reading "Don't let your credit put you in a bad place." Or by the hotel receptionist who greets you and asks, "You look lost... come to solve the great mystery of credit?"
But here's the real scary part that I forgot to mention: The Bad Credit Hotel is brought to you by the U.S. Department of the Treasury. Really.
Just as the financial crisis was spinning out of control last week, the Treasury announced a joint media campaign geared at educating younger Americans about how to manage their credit. The online Bad Credit Hotel game is part of the campaign. Click on the clock to learn that creditors cannot call you before 8am or after 9pm. Click on a library book and the receptionist will suggest you begin studying "history--credit history that is."
Ok good--this campaign is geared at preventing another credit crisis. The skeptic in me, however, sees a bit of irony in the Treasury's teachings on debunking the "mystery" of credit. Mystery is about the only thing that looks certain in this financial crisis. Meanwhile, the U.S. Treasury is set to become the biggest creditor in history.
Didn't Treasury Secretary Henry Paulson learn on Wall Street that timing is everything? With bailout talks in chaos, and controvery growing over what would be the biggest government injection in history, my favorite scene of the game begins with a "worldly" treasury-dreamed-up character explaining, "I was once young and careless like you, spending my money like a sailor..."
Dear Mr Paulson, not the image of Treasury you want to promote, noble as the intentions may be.
Perhaps the reason Congress is giving Paulson such a hard time these days is that they, too, have checked in to the Bad Credit Hotel, heeding this next character's advice: "It's hard to find your way when things are at their darkest... don't let the smoke get in your eyes."
There is a lot of scapegoating going on for this financial crisis (think greedy traders, insipid wall street managers, delinquent regulators), but there is one usual suspect who has been left out so far: China. This time around, hardly anyone is talking tough about the People's Republic...because we need them desperately.
It would be enough that the Chinese own the second-most United States' treasury bonds of any foreign nation (about $518 billion as of July). Almost certainly, if the bail out goes forward, that number will rise.
These days, private banks are creditors too. There was a small panic when rumors spread that China had ordered its banks to stop extending credit to U.S. financial institutions as they have been in previous months. The China Banking Regulatory Commission denied the claim, saying that business was going forward as usual. Traders say otherwise.
True or not, the point of the scare remains. We are more interdependent than either country might care to admit. China has taken the hint; last week, it asked banks to disclose their stakes in United States' firms. The government cut interest rates for the first time in six years to boost the markets.
So we're in it together. But lending a hand to a friend in crisis? Not quite.
In sheer economic terms, I tend to doubt that unless Congress puts together a bailout bill before Monday -- as seems to be the emerging conventional wisdom -- all hell will break loose in markets around the world. As Raghuram G. Rajan told FP earlier this week, the U.S. government's recent moves have actually given the economy some breathing room:
I think three actions by the regulators have bought us a little bit of time. First, guaranteeing the money-market funds. The second was taking some of the pressure off Goldman Sachs and Morgan Stanley by allowing them to become bank holding companies. And third, announcing the fact that the government was serious about fixing the system.
That said, Senate Majority Whip Dick Durban makes a good point here when he says, "If we start talking about another week or two, it will take another week or two." What's more, opportunistic members of Congress will only have more chances to lard up the legislation with irrelevant, possibly harmful additions. So, I can understand why President George W. Bush wants to see action sooner rather than later -- even if it isn't quite as urgent as he says it is.
I could, of course, be catastrophically wrong, and the markets could seize up Monday if Congress doesn't pass a bill.
Here's what to look for. Forget about stocks for the moment. Since the main problem that is keeping Ben Bernanke and Hank Paulson up nights is financial institutions' unwillingness to lend to one another, that's what we should really be paying attention to. The key indicators to watch in this regard are the so-called TED spread and, relatedly, LIBOR. Here's what the TED spread is doing these days:
As you might be able to infer, up is bad. If it spikes any further on Monday, we are all in big trouble.
We don't yet know what House Speaker Nancy Pelosi, Minority Leader John Boehner, and Treasury Secretary Hank Paulson decided during their meeting this afternoon. But if I had to guess, I would say that they were trying to come up with a compromise that gives everyone equal cover. This bailout bill is a political hot potato, and neither party wants to get burned.
Whether the bill passes or not, the U.S. economy is not about to roar back to life anytime soon. In fact, things may get worse before they get better. So, even if the legislation that ultimately passes is smart policy, whoever is seen as its "owner" in the public eye will be blamed as the economy continues to struggle. So the stakes are pretty high.
Which makes it all the more troubling that, in declaring his intention to come back to Washington and pitch in, John McCain may have just blown Pelosi and Boehner's negotiations to smithereens. What was already a politicized debate in Congress has just become fodder for the presidential campaigns, and it will be much harder to get a deal done. Discretion would have been the better part of valor here.
It was almost ominous. Writing in FP in 2000, Ben Bernanke imagined the next stock market crisis, and how true recession might be averted.
There's no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse."
So, how would Bernanke stack up to his own expectations? According to the now Fed chairman's article, central banks must keep banks intact, credit flowing, and interest rates low. In Congress yesterday, Bernanke said this:
Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth."
Great. He passes. But could that be part of the problem?
I used Bernanke's macroeconomics textbook in college, and learned that market ups and downs are natural. Did years of pushing those minor blips into the horizon -- one liquidity injection or interest rate decrease at a time -- cause today's massive build up of bad? The housing bubble, for example, might have been encouraged to shrink before it got too big. Instead, all those bad loans have built up into the torrent of junk in need of a bailout today.
Weigh in on your thoughts in comments. In the meantime, I'm still hoping that the man who taught me macro was right in 2000:
If Wall Street crashes, does Main Street follow? Not necessarily."
Tyler Cowen offers a handy simplification of the difference between the bailout plan put forward by Treasury Secretary Henry Paulson and the revised version proposed by Democratic Sen. Chris Dodd:
Think of a barrel of apples, some good, some less good. To oversimplify, the Paulson plan has the government buy some of the bad apples. The Dodd plan has the government buy a 20 percent share in the barrel. In both cases government buys something.
If you're a current or former employee of AIG or Lehman Brothers, there's a special discount for you in Chicago: half-price beer in which to drown your worries.
The Fifty/50 restaurant is giving a 50 percent discount on bar and restaurant tabs to customers who have proof they work, or once worked, for bailed-out AIG or bankrupt Lehman Brothers. The discount is more generous than the one offered to "poor" American tourists at the famous Harry's Bar in Venice, but it is limited to Sundays through Thursdays until October.
This statement, from Kentucky Republican Sen. Jim Bunning, is priceless:
Instead of celebrating the Fourth of July next year Americans will be celebrating Bastille Day; the free market for all intents and purposes is dead in America... The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been mislead throughout this economic crisis. The government on all fronts has failed the American people miserably."
Just released: Federal Reserve Chairman Ben Bernanke's testimony before the Senate Banking Committee:
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.
Pretty mild stuff, given the stakes. I wonder what he told the congressmen in private last week that had them so terrified?
UPDATE: You can watch the hearing here at 9:30 a.m. ET.
... here's Paulson's testimony.
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