Secretary Paulson - Makes the Right Call

The Wall Street Journal - The resources of the U.S. government are vast, but not unlimited. Thus far this year, officials have put federal funds at risk to facilitate the takeover of an investment bank, Bear Stearns, and to provide unconditional support to two government-sponsored enterprises, Fannie Mae and Freddie Mac.

Treasury and Federal Reserve officials gathered the reigning titans of Wall Street and told them that the solution to the problems some had with insufficient capital had to come from within the private sector. No such solution was forthcoming. And now there are two fewer independent investment banks. Lehman Brothers, a 158-year-old firm that started by trading cotton, is bankrupt, and the thundering herd of Merrill Lynch brokers will now answer to bosses at Bank of America. ...(..)

.. .The critical message for all of us to understand is this: There are still major losses in securities portfolios on the balance sheets of major U.S. financial firms. Until these firms get more capital to cover the losses, they will be unwilling to support market activity and will likely take active steps to shed assets.

The other thing to understand is that, in coming days and weeks, the resolve of officials at the Treasury Department and the Federal Reserve will be tested again. Some will counsel that there are insurance companies that are too interconnected to fail. Or that depositors at some large regional banks should be protected beyond the Federal Deposit Insurance Corporation's limit of $100,000 per account. (...). Edition By Ton from Brazil.

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