In his column this morning Paul Krugman catalogs a lengthy series of things that could or are going wrong in the financial crisis. The crisis may be spreading to hedge funds, spared until now. This crisis is spreading to developing economies. The Treasury has balked at completely securing Fannie Mae and Freddie Mac.
This is the snippet that caught my eye:
It was good news when Mr. Paulson finally agreed to funnel capital into the banking system in return for partial ownership. But last week Joe Nocera of The Times pointed out a key weakness in the U.S. Treasury’s bank rescue plan: it contains no safeguards against the possibility that banks will simply sit on the money. “Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead.†And sure enough, the banks seem to be hoarding the cash.
Are they? That isn’t quite what the Minneapolis Federal Reserve Bank has found:
The report has lots of nifty graphs and charts that don’t support the reports of a credit freeze particularly well.
Dr. Krugman concludes his column with a sideswipe at the Bush Administration for allowing ideological blinders to prevent them from seeing what needs to be done. There may be a lot of that going around.
