Sober analysis?

Commenting on the ongoing financial crisis Ms. Anna Schwartz , who is 93 and co-author of ‘Monitary History’ says “This is not due to a lack of money available to lend, but to a lack of faith in the ability of borrowers to repay their debts. ”

In this Wall Street Journal interview, she argues that the administration and the Fed has been inconsistent, and unaccomodative of the root cause of the problem; rather resorted to adhoc, reactionary responses to the current ‘credit disturbances’, as she refers to it.

She opposes direct capital injection to banks as being a step that is not dealing with the root cause of the problem, which is bad assets held by banks that are hard to value thus hard to sell, as a result clogging credit activities.

She points out that the first ‘asset buyout’ approach was the right one, but the recent aboutface by the government to directly invest in large banks and other institutions as being a bad prescription to the problem.

I get what she is saying, but I wonder if the US government had a choice on the matter given steps taken by Europeans, especially Britain to guarantee bank deposits. If we didn’t do anything here, the cash would have migrated overseas.

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