Sunday, September 14, 2008

It's A Bailout: Paul Krugman Gets It

We posted below:

And make no mistake about it, while Lehman, itself, is not being bailed out, Wall Street is. The expanded lending facilities will indirectly pay off those who hold demand obligations from Lehman and want out now. That's a bailout.

Paul Krugman appears to be thinking the same way. He writes:

When is not a bailout a bailout

So the word seems to be that Lehman will be liquidated — hey, no more taxpayer takeover of risk, no more moral hazard; but to cushion the markets against the shock, the Fed will start accepting lower-quality assets, such as equities, as collateral for its credit lines — hence, more taxpayer takeover of risk, and more moral hazard. Oh, kay.

-Robert Wenzel

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