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“During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.”

He knew this before the bill was signed and didn’t mention it?


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One Response

  1. My theory: Paulson and Bernanke’s plan all along was to buy bank shares. Most economists (not, admittedly, the brightest group of people) were scratching their heads wondering just what tbuying worthless assets at market prices was supposed to do before it was passed. But P & B knew that explicitly calling for a partial nationalization of the banks would have had a hard time passing – so they put in their first 3 page plan that they knew would get marked up, and had some congressman or staffer put in the language making it possible to do what they really wanted to do all along.

    Another theory – the whole “Godfather” scenario that the papers reported, where Paulson called the bankers into a room and presented them with papers to sign saying they would take money whether they wasnted to or not, was a PR job. None of the banks could afford to look like they needed the money, so Paulson made it possible to claim that they didn’t need it, but were “forced” to take it.

    Pretty clever, actually. Imagine if either of these guys actually had a clue about how the monetary system worked? We might be well on our way to fixing it…

    Pretty clever, actually –

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