Socialize the banks
Paul Krugman writes: “I’m sure that Mr. Bernanke and his colleagues are frantically considering other actions that they can take, but there’s only so much the Fed — whose resources are limited, and whose mandate doesn’t extend to rescuing the whole financial system — can do when faced with what looks increasingly like one of history’s great financial crises.
The next steps will be up to the politicians.
I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.”
 http://www.spiegel.de/international/0,1518,druck-541438,00.html
Comment: The Fed has reached a deadlock. Monetary policy authorities have vividly demonstrated that they are quite good at producing disaster, but rapidly run out of tools when they are called upon to deal with the mess that they have produced in the first place. Krugman is not too far off in his analysis, but, as usual, draws the wrong conclusion, a conclusion in fact, that would make matters only worse. How can he bank on “the next administration”, an administration that will he headed either by Clinton or Obama or McCain and company? To give the monetary system fully into the hands of politicians will even be worse than having it in the hands of Bernanke and company.
posted by Antony Mueller