Bailout

Prof. Feldstein: The bailout bill doesn’t get at the root of the credit crunch

by

The Problem Is Still Falling House Prices

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.

The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of other banks.

Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house.

Read moreProf. Feldstein: The bailout bill doesn’t get at the root of the credit crunch

What You Could Get for $700 Billion

by

The US Congress is going to take another stab at passing the gigantic bank bailout package on Friday. But how much money are we talking about? SPIEGEL ONLINE gives you an idea.


$700 Billion. What else could be done with all those zeros? We have some ideas. (AFP)

Money makes the world go round — and certainly with $700 billion — that’s $700,000,000,000 — you could accomplish a great deal. That’s how much the US government wants to pump into the financial system in order to avoid another bankruptcy on the scale of Lehman Brothers.

The deal stumbled in the House of Representatives on Monday, leading immediately to a steep stock exchange fall in New York and markets around the world. Now, though, after a bit of tinkering, Congress has been asked to vote again. The Senate has already given “Bailout Package: The Sequel” its seal of approval with the House set to vote again on Friday.

But just how much money are we talking about here? Most folks’ eyes get glassy once the number of zeros gets up above six. As a public service, SPIEGEL ONLINE has come up with a list of other things one could possibly do with $700 billion, were it lying around.

10/03/2008

Source: Spiegel Online

Bush Signs Bailout After House Passage

by

WASHINGTON — President George W. Bush signed the biggest government intervention in the financial markets since the Great Depression after U.S. House of Representatives lawmakers wary of growing signs of the nation’s economic distress voted Friday in favor of a $700 billion Wall Street rescue package.


President Bush is greeted by Treasury Secretary Henry Paulson after the House passed the bailout bill (AP)

Mr. Bush welcomed the passage of a rescue plan, saying it will help the nation’s economy withstand the financial turmoil. The legislation is “essential to helping America’s economy weather the financial crisis,” said the president, giving a brief statement outside the White House.

Mr. Bush acknowledged widespread concern about using taxpayer money to bail out wealthy bankers, but said the ultimate cost will be “far less” than the initial government outlay, since the plan is to sell the toxic assets back into the market once it recovers.

Read moreBush Signs Bailout After House Passage

The Elephant in the Room: Credit Default Swaps

by

Studies show that people often fear the wrong things. We are terrified of things which probably won’t hurt us, but blissfully unconcerned with things that might really kill us (see this, this and this). So we put a tremendous amount of energy into solving non-problems, and get blindsided by things that we don’t know about or which we are too afraid to even think about.

The same applies to the economic crisis.

For example, the market for credit default swaps is larger than the entire world economy.

Credit default swaps – which were largely responsible for bringing down Bear Stearns, AIG, WaMu and other mammoth corporations – are now being taken out against the U.S. government.

So you’d think that politicians trying to prop up the teetering U.S. economy would want to cancel credit default swaps, or at least declare their value is somewhere near zero.

Nope . . . not even on their discussion list, even though it is the real economic crisis.

Instead, they are proposing things which most experts say will actually harm the economy.

Call congress and tell them to stop their political posturing, stop ignoring the derivatives elephant in the room, and either do something useful or nothing at all.

Posted by George Washington at 1:08 PM
Wednesday, October 1, 2008

Source: George Washington’s Blog

Why Paulson has not explained the real purpose of the bailout to the American people

by

Related:
“An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,” Paulson said 18 months ago.

Treasury Secretary Henry Paulson declared that the current turmoil in markets and financial institutions ultimately will “make things better.” (September 15, 2008)

The mystery has been solved

For nearly a year, we have been asking ourselves why the investors and foreign banks that bought up hundreds of billions of dollars of worthless mortgage-backed securities (MBS) from US investment banks have not taken legal action against these same banks or initiated a boycott of US financial products to prevent more people from getting ripped off?

Now we know the answer. It’s because, behind the scenes, Henry Paulson and Co. were working out a deal to dump the whole trillion dollar mess on the US taxpayer. That’s what this whole $700 billion boondoggle is all about; wiping out the massive debts that were generated in the biggest incident of fraud in history.

Rep Brad Sherman explained it like this last night to Larry Kudlow:

“It (The bill) provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson’s power. There is a critique board but not really a board that can step in and change what he does. It’s a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries……. It’s very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn’t owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can’t buy it. It was rejected.

The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can’t be sold to the Treasury. Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure it can happen.”

So, why hasn’t the Treasury Secretary explained the real purpose of the bailout to the American people? Could it be that he knows that his $700 billion bailout would end up like the Hindenburg, vanishing in sheets of flames?

Read moreWhy Paulson has not explained the real purpose of the bailout to the American people

Senate May Try to Revive Financial-Rescue Legislation

by


U.S. Senator Christopher Dodd, chairman of the Senate Banking Committee, left, and Senator Judd Gregg, a Republican from New Hampshire, speak to reporters at the U.S. Capitol in Washington, Sept. 29, 2008. Photographer: Jay Mallin/Bloomberg News

Sept. 30 (Bloomberg) — The U.S. Senate will try to salvage a $700 billion financial-rescue package after the measure was defeated in the House of Representatives. The lawmakers won’t have a lot of room to negotiate.

While the legislation will need to be tweaked enough to win over reluctant House Republicans, the lawmakers will risk losing votes from Democrats if they veer too far from the delicate compromise that congressional leaders hammered out with the U.S. Treasury.

“They’re not going to totally revamp the bill,” said Pete Davis, president of Davis Capital Investment Ideas in Washington, who spoke to House and Senate leaders yesterday. “They’ll make some minor changes and pass it. This is all about political cover.”

Read moreSenate May Try to Revive Financial-Rescue Legislation

The $55 trillion question

by

The financial crisis has put a spotlight on the obscure world of credit default swaps – which trade in a vast, unregulated market that most people haven’t heard of and even fewer understand. Will this be the next disaster?

(Fortune Magazine) — If Hieronymus Bosch were alive today to paint a triptych called “The Garden of Mortgage Delights,” we’d recognize most of the characters in the bacchanalia and its hellish aftermath. Looming largest, of course, would be the Luciferian figures of Greed and Excessive Debt. Scurrying throughout would be the Wall Street bankers who turned these burgeoning debts into exotic securities with tangled structures and soporific acronyms – CDO, MBS, ABS – that concealed the dangers within. Needless to say, we’d see the smooth-tongued emissaries of the credit-rating agencies assuring people that assets of lead could indeed be transformed into investments of gold. Finally, somewhere past the feckless Fannie Mae executives and the dozing politicians, one final figure would lurk in the shadows: a hulking and barely recognizable monster known as Credit Default Swaps.

CDS are no mere artist’s fancy. In just over a decade these privately traded derivatives contracts ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they’ve played a critical role in the unfolding financial crisis. First, by ostensibly providing “insurance” on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.

Read moreThe $55 trillion question

U.S. Stocks Plunge After House Votes Against Bailout Plan

by

Sept. 29 (Bloomberg) — U.S. stocks plunged and the Standard & Poor’s 500 Index tumbled the most since 1987 after the House of Representatives voted down a $700 billion plan to rescue the financial system.

Sovereign Bancorp Inc. tumbled 66 percent and National City Corp. slid 52 percent, leading financial shares in the S&P 500 to an 11 percent slide. The MSCI World Index of 23 developed markets sank 6 percent, the most since its creation in 1970

“It’s pretty much a nightmare,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. “This is the worst we’ve seen it since the credit mess started. Until we know exactly why they didn’t pass it, we’re going to be selling off for a while.”

The S&P 500 sank as much as 87.02 points, or 7.2 percent, to 1,125.99. The Dow Jones Industrial Average slid 631.13, or 5.6 percent, to 10,512 at 2:09 p.m. The Nasdaq Composite Index declined 148.4, or 6.8 percent, to 2,034.94.

Read moreU.S. Stocks Plunge After House Votes Against Bailout Plan

Fed Pumps Further $630 Billion Into Financial System

by

Sept. 29 (Bloomberg) — The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand to $450 billion from $150 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, comes as Congress prepares to vote on a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, forcing European governments to rescue four banks over the past two days alone.

Read moreFed Pumps Further $630 Billion Into Financial System

Fortis Gets EU11.2 Billion Rescue From Governments

by

Sept. 29 (Bloomberg) — Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated last week.

Belgium will buy 49 percent of Fortis’s Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch banking business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.

Fortis is the largest European firm so far caught up in the global financial crisis that drove Lehman Brothers Holdings Inc. into bankruptcy two weeks ago and prompted U.S. President George W. Bush to seek a $700 billion bank rescue package. Fortis dropped 35 percent last week in Brussels trading on concern the company would struggle to replenish capital depleted by the 24.2 billion- euro takeover of ABN Amro Holding NV units and credit writedowns.

Read moreFortis Gets EU11.2 Billion Rescue From Governments

Rep. Marcy Kaptur warns: There are domestic enemies to the Republic

by


Photo: Perpetrators of the greatest financial crime in history celebrating their fraud against the American people.

Rep. Marcy Kaptur (D-OH) warns the American people about Constitutional enemies of the Republic and the fraudulent trillion(s) dollar bailout:

“My message to the American people don’t let Congress seal this deal. High financial crimes have been committed.”

“The normal legislative process has been shelved. Only a few insiders are doing the dealing, sounds like insider trading to me. These criminals have so much political power than can shut down the normal legislative process of the highest law making body of this land.”

“We are Constitutionally sworn to protect and defend this Republic against all enemies foreign and domestic. And my friends there are enemies.”

“The people pushing this deal are the very ones who are responsible for the implosion on Wall Street. They were fraudulent then and they are fraudulent now.”

Read moreRep. Marcy Kaptur warns: There are domestic enemies to the Republic

September 15, 2008 – Bush: Economy strong enough to handle turmoil

by

How can anyone trust Bush and Paulson with a $ 700.000.000.000 bailout?
They either lie every time they open their mouth or they have set a new world record for unlimited ignorance.
__________________________________________________________________________

WASHINGTON -The Bush administration signaled strongly today that troubled Wall Street should not expect more rescues from Washington.

Treasury Secretary Henry Paulson declared that the current turmoil in markets and financial institutions ultimately will “make things better.”

By Associated Press
Monday, September 15, 2008

Source: Boston Herald

Rep. Michael Burgess: “We Are Under Martial Law”

by

Rep. Michael Burgess (R-TX) reports from the floor of the House that the Republicans have been cut out of the process and called unpatriotic for not blindly supporting the fraudulent bailout. He says the only debate has been about what talking points to use on the American people. The most ominous revelation is when he claims the Speaker has declared martial law.

“I have been thrown out of more meetings in this capital in the last 24 hours than I ever thought possible, as a duly elected representative of 825,000 citizens of north Texas.” Said Congressman Burgess.

Burgess asks the Speaker of the House to post the bailout bill on the internet for at least 24 hours instead of passing the largest piece of legislation in US financial history in the “dark of night.”

The most frightening part of Rep. Burgess’ one-minute floor speech is when he says, “Mr. Speaker I understand we are under Martial Law as declared by the speaker last night.”

By: D. H. Williams @ 4:20 PM – EST
September 28th, 2008

Source: Daily Newscaster

Markets face major crash if US bail-out plan collapses

by

There will be a depression anyway, but if the bailout “succeeds” there will be a complete meltdown in the not too distant future. Again the elite is pressing the fear button.
_____________________________________________________________________________


World markets depend on Paulson’s plan Photo: GETTY

London shares could lose a fifth of their value and the money market faces collapse unless US politicians succeed with their financial bail-out plan, it has been warned.

A leading investor predicted that the FTSE 100 could drop by as much as 1,000 points on Monday if Treasury Secretary Hank Paulson’s $700bn (£380bn) plan fails. Such a fall would come close to matching the stock market crash of 1987.

The warning came as markets lurched their way to the end of another fraught week amid fears that the White House rescue operation could be derailed in Congress by conservative Republicans.

Read moreMarkets face major crash if US bail-out plan collapses

Bailout can’t hide it – the United States is broke

by

By Chris Powell

CHRIS POWELL IS MANAGING EDITOR OF THE JOURNAL INQUIRER IN MANCHESTER.

Even leading Republicans in Congress, including presidential nominee Sen. John McCain, recoiled from Treasury Secretary Henry M. Paulson’s proposal to take absolute power over $700 billion to be borrowed by the federal government and used to purchase every sort of bad debt without ever having to answer for it – not to the courts, not to regulatory agencies, and only occasionally and incidentally to Congress itself.

The bad-debt bailout would be the biggest government patronage program in history and would amount to declaring martial law over the U.S. financial system and economy. Even if such martial law is necessary, its implementation should be put in democratic hands – a non-partisan agency with full transparency, statutory standards for its purchases, and close accountability to Congress.

All the same, even if it can work – that is, prop up insolvent financial institutions – the Treasury’s proposal is still a proclamation of the collapse of the whole U.S. financial system. Even if some financial institutions are saved, the collapse will manifest itself in other ways, probably ways more damaging to the public. For who cares if Goldman Sachs and Morgan Stanley endure if the issuance of $700 billion more in government bonds drives interest rates way up, diverts credit from the private economy, devalues the already sinking dollar, and sends commodity prices soaring again?

In that case the financial class will have won another battle in its long war against the producing class. It will be again as was said about the maneuvers of the Second Bank of the United States two centuries ago: “The bank was saved; only the people were ruined.”

Injecting throughout the world financial system their bogus and unregulated financial instruments, like collateralized debt obligations and credit-default swaps, the big New York financial houses have taken the world economy hostage. The president and Congress should strive to save the hostages, not the kidnappers.

But the president and Congress have participated eagerly with the kidnappers in the total corruption of the financial system.

They have staffed the regulatory agencies largely from Wall Street and then diminished financial regulation.

They have let the financial houses finance presidential and congressional campaigns.

They have watched haplessly as accounting firms and credit-rating agencies engaged in conflict of interest and failed to do their jobs over and over again even as corporate scandal followed corporate scandal.

They have waged mistaken imperial war not with taxes but with huge amounts borrowed from abroad, making the country hostage to foreign nations, including some with hostile interests.

They have approved the government’s falsification of inflation data and its surreptitious suppression of the price of gold so that interest rates could be set below the inflation rate, the government and everyone else could borrow more at lower interest, and the public would not become alarmed by monetary debasement.

Now the U.S. government is conjuring into existence via a few computer keystrokes fantastic, virtually inconceivable amounts of money. Unreal as these amounts are, they will be claims on the real goods and services of the country, and, if the rest of the world wants to keep playing along, which is doubtful, claims on the real goods and services of the rest of the world as well.

The purpose of all this will be to save the people who happen to be in charge of the payments system and to save the propertied class generally. But people without many assets, people who don’t earn enough to own housing, people who could gain from lower housing prices and lower prices of everything else, are not even in the government’s equation.

The country is simply busted. Its financial obligations are unpayable, its asset prices are illusions, and the great undertaking in Washington and New York is to preserve those illusions rather than face reality. If the price of preserving those illusions is $700 billion – and of course it is more likely to run into the trillions – could it really be more expensive to dispense with the illusions now? After all, instead of rescuing financial institutions that disregarded risk, the government just as easily could keep the country going by sending checks to everyone every month – as it already sends Social Security checks to retirees.

But as long as the government keeps paying ransom, the financial class will keep taking the country hostage.

Published on 9/26/2008

Source: The Day

Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

by

Sept. 25 (Bloomberg) — More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.

In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson’s plan because it’s a “subsidy” for business, it’s ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.

Read moreHundreds of Economists Urge Congress Not to Rush on Rescue Plan

Lawmakers: Financial bailout agreement reached

by


Senate Banking Committee Chairman Sen. Chris Dodd., D-Conn., center, speaks during a news conference with, from left, Sen. Bob Corker, R-Tenn., Sen. Charles Schumer, D-N.Y., Sen. Robert Bennett, R-Utah, Sen. Judd Gregg, R-N.H., and Sen. Jack Reed, D-R.I., following a meeting on the market turmoil on Capitol Hill in Washington, Thursday, Sept. 25, 2008. (AP Photo/Susan Walsh)

WASHINGTON (AP) – Key Republicans and Democrats reported agreement Thursday on an outline for a historic $700 billion bailout of the financial industry, but there was still resistance from rank-and-file House Republicans despite warnings of an impending panic.

“I now expect we will, indeed, have a plan that can pass the House, pass the Senate, be signed by the president and bring a sense of certainty to this crisis that is sill roiling in the market,” Sen. Bob Bennett, R-Utah, said as members of both parties emerged from a two-hour negotiating session.

Negotiators planned to present the outline at a White House meeting later Thursday with President Bush and the rivals to replace him, Republican John McCain and Democrat Barrack Obama.

“We’re very confident that we can act expeditiously,” said Sen. Chris Dodd, D-Conn., the Banking Committee chairman.

Read moreLawmakers: Financial bailout agreement reached

Bailout Could Deepen Crisis, CBO Chief Says

by

Asset Sales May Lead to Write-Downs, Insolvencies, Orszag Tells Congress


Peter R. Orszag, director of the Congressional Budget Office, testifies on Capitol Hill yesterday. (By Brendan Hoffman — Getty Images)

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.

During testimony before the House Budget Committee, Peter R. Orszag — Congress’s top bookkeeper — said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

“Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values,” Orszag said in his testimony. “Establishing clearer prices might reveal those institutions to be insolvent.”

Read moreBailout Could Deepen Crisis, CBO Chief Says

BAILOUT: Ron Paul Educates Bernanke…yet again 9/24/2008

by


Source: YouTube

Wednesday, September 24, 2008

Dear Friends,
Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down Congress’ throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! “This is welfare for the rich,” he said. “This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters.”
That describes the current bailout package to a T. And we’re being told it’s unavoidable.
The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences – predictable, that is, to those who understand sound, Austrian economics – are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

  • The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
  • Financial institutions are “designated as financial agents of the Government.” This is the New Deal to end all New Deals.
  • Then there’s this: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.
Even some so-called free-market economists are calling all this “sadly necessary.” Sad, yes. Necessary? Don’t make me laugh.
Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind – another example of the big choice we’re supposedly presented with this November: yes or yes. Now, with a backlash brewing, they’re not quite sure what their views are. A sad display, really.
Although the present bailout package is almost certainly not the end of the political atrocities we’ll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?
Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul

China Shuns Paulson’s Free Market Push as Meltdown Burns U.S.

by

“An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,” Paulson said.

Contemplate that for a moment.
Now add this to your contemplation:

Section 8 of the proposed legislation says it all:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
Right; “non-reviewable” supremacy.

Would you trust Mr. Paulson that much???

There are only two possibilities left:
1. Mr. Paulson does not have the foggiest idea what he is talking about.
2. Mr. Paulson is a puppet of the elite and all of this is a New World (Market) Order conspiracy, which will lead to the the destruction of the Dollar, the destruction of the middle class and the bankruptcy of the US.
___________________________________________________________________________


Henry Paulson, secretary of the U.S. Treasury, gives a speech on Chinese financial markets at the Shanghai Futures Exchange in Shanghai on March 8, 2007. Photographer: Qilai Shen/Bloomberg News

Sept. 24 (Bloomberg) — Eighteen months ago, U.S. Treasury Secretary Henry Paulson told an audience at the Shanghai Futures Exchange that China risked trillions of dollars in lost economic potential unless it freed up its capital markets.

“An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,” Paulson said.

That advice rings hollow in China as Paulson plans a $700 billion rescue for U.S. financial institutions and the Securities and Exchange Commission bans short sales of insurers, banks and securities firms. Regulators in the fastest-growing major economy say they may ditch plans to introduce derivatives, and some company bosses are rethinking U.S. business models.

“The U.S. financial system was regarded as a model, and we tried our best to copy whatever we could,” said Yu Yongding, a former adviser to China’s central bank. “Suddenly we find our teacher is not that excellent, so the next time when we’re designing our financial system we will use our own mind more.”

The recent moves by Paulson, the former chief executive officer of Goldman Sachs Group Inc., contradict what the U.S. told Asian governments over the past decade. Thailand, South Korea and Indonesia were urged to let unviable banks fail during the 1997-98 Asian financial crisis.

Read moreChina Shuns Paulson’s Free Market Push as Meltdown Burns U.S.

Ron Paul: Bailouts will lead to rough economic ride

by

By Ron Paul
Special to CNN


Rep. Ron Paul says the government’s solution to the crisis is the same as the cause of it — too much government.


(CNN) — Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Read moreRon Paul: Bailouts will lead to rough economic ride