Paulson’s Failure

Why am I not reassured by Hank Paulson’s latest press conference?

"We’re going to do it as soon as we can do it and do it properly and do it effectively and right," Paulson said. "Trust me, we are not wasting time; people are working around the clock to deal with this." …

Responding to a question, Paulson said markets may "have some volatility for a while" and "this is about confidence."

I’m sorry, Hank, but the time for simply trusting you is long gone. You’re right, this is about confidence, and, as Paul Kedrosky said today, "Paulson is rapidly losing whatever credibility he once had".

The G7 statement was vacuous and extremely disappointing: was "we commit to continue working together" really the best they could come up with? They were very long on ends, and utterly lacking in means. Yes, everybody knows what has to be achieved. But unless and until there’s a concrete plan to get there from here, markets are going to continue to unravel.

"Paulson sounds terrified," says Paul Krugman, and I can see why: he can’t let Morgan Stanley fail, but he’s not up and running yet on a bank recapitalization plan which could save it. Dani Rodrik says that unless the G7 manages to come up with something extra this weekend, "we are really toast" — I’d certainly expect another one of those 700-point down days on the Dow, which seems to be the most-watched indicator at the moment, and TED widening out to 500bp.

When the history of this crisis is written, I suspect that two events will emerge as major errors, both of them involving Paulson in a central role: the decision to let Lehman Brothers default, and the failure to announce a coordinated rescue plan at the IMF meetings in Washington. We thought the man from Goldman Sachs would save us; instead, he’s leading us to meltdown.

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