Henry Paulson’s Shell Game

He says that the US (and by extension global) financial system is suffering from 4 problems:

• The banks have toxic product no-one wants, and the lack of trust in their value is paralysing lending.
• The banks have holes in their balance sheets from bad debt.
• The economy has been running on housing bubble debt, which must now normalise.
• And finally, there are credibility problems in terms of the governments and banks that created the problems proposing the solutions.

He argues that the plan as it has now passed the US Congress addresses only the first issue ( and at cost to the State, not the banks). This is a simple argument about designing things the right way first time round. It’s also an implicit argument that that’s not even being attempted because this is a bail-out of Wall Street, with little regard for the impact to taxpayers and the incoming administration.

Image by Duncan Hull