MemeWatch: Superconduit as Treasury Bail-Out

Bloomberg’s Brendan Murray and Simon Kennedy have an article up today headlined


Credit Push Earns Jeers From Free-Marketers". It kicks off like this:

U.S. Treasury Secretary Henry Paulson’s plan to shore up asset-backed commercial

paper is drawing criticism from free-market advocates, who say it risks shielding

banks from the consequences of poor decisions.

It’s not just "free-market advocates", either: it’s also the likes

of Dean Baker, who describes

the proposed superconduit as "a bailout by the nanny state for the big

boys who lack the ability to get by on their own in a free market".

I’m not convinced that this is really a Treasury bailout, if only because anybody

capable of bringing senior bankers together could, in theory, have achieved

exactly the same thing. (Maybe the IIF might have

been able to orchestrate something along these lines, in an alternate universe

where it was, you know, actually relevant.)

Nouriel Roubini, who knows

from bail-outs, has a long

blog entry up today which keeps on hinting that there’s a Treasury bailout

going on but never quite comes out and says it. Instead, Roubini concentrates

his attention not on Treasury and the superconduit, but rather on the Fed and

something called Section 23A of the Federal Reserve Act (Reg W). When the Fed

waived that section, says Roubini, that was the real bailout.

So maybe if the "free-marketeers" want to start pointing moral-hazard

fingers, they should swivel a little and aim at Bernanke, rather than Paulson.

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