"Something resembling a bailout will become inevitable, despite the tough talk of the moment."
So the rest of this article is basically bullshit?
"No-bailout stance sends vital message" by Steven Syre, Globe Columnist | September 16, 2008
Paulson's decision faces an even bigger test right away. Bankers yesterday searched urgently for as much as $75 billion in pri vate financing for insurance giant American International Group Inc., another company choking in the grip of fearful credit markets. Success for AIG will help make Paulson's point that the market should solve most of its own problems.
The Lehman crisis was a good place for government officials to force private business to deal more aggressively with its own problems. The financial services industry, which sneers at any government encroachment while it's making money, had come to take a helping hand for granted in its time of need. Other industries, particularly auto manufacturers, began to form a line of their own in Washington to lobby for financial support.
Translation: Lobbying for a TAXPAYER GIFT!!!!
In most cases, the answer should be no. That's an easier message to deliver once you've slammed the door in someone else's face. "You have to wonder who is going to suffer as Lehman goes down," says Nariman Behravesh, chief economist at Global Insight. "It could be commercial banks or pension funds, you name it. The interconnectedness of the financial system means it can have major ramifications for the average American. The financial markets have gotten so arcane people think maybe it doesn't affect them but it does."
Companies like Lehman, known as broker-dealers, borrow and lend money to dozens of other parties as a routine part of business. They borrow heavily to own relatively straightforward investments like mortgage-backed securities, but also execute millions of transactions in more complex corners of the market like that for credit default swaps, a kind of insurance investment to protect against the failure of yet other securities.
Connecting all those dots is virtually impossible. But that's only half the problem.
The other half, perhaps the more important part, is a fundamental question of confidence - whether investments are worth their price, and whether they're safe. Paulson and Federal Reserve chairman Ben Bernanke have acted aggressively through the crisis, but neither speaks with the kind of authority to soothe financial and economic leaders around the world.
Those problems will keep the federal government aggressively involved in capital markets and the economy, even while it tries to hold the line on anything that looks like a bailout. One example: Most analysts expect the Federal Reserve to cut interest rates soon.
They ALREADY ARE HEAVILY INVOLVED! That's how this MESS BEGAN!!
Meanwhile, the Fed continues to offer Wall Street banks access to the kind of loans of last resort it has always made available to commercial banks.
Where is YOUR LOAN, American?
That offer was first extended up and down Wall Street when Bear Stearns failed, though it hasn't been used by any investment bank since July. Now the Fed has expanded the kinds of collateral it will accept, including pledges of stock in return for loans.
That does not sound good!!!
There are certainly more financial shocks to endure, and government action will have to be part of the response. Perhaps something resembling a bailout will become inevitable, despite the tough talk of the moment. It's too hard to predict when an emotion like confidence is the critical issue. But this is a good time to see whether giant investors and traders who created so much of the problem can do more to fix it on their own.
Yeah, this is all based on EMOTION, huh?