Tuesday, March 03, 2009

Time to break some contracts

There have been weeks of FDR bashing at National Review's The Corner. Now all of a sudden, he's a genius, according to Rich Lowry --

FDR took office in the midst of a total meltdown of the banking system and acted boldly to arrest it. In March 1933, the Dow was at 52. It climbed 75 percent in the first 100 days. By December 1, 1933 it was 99. Obama is temporizing with his financial crisis in favor of moving quickly on his big spending plans, and watching the Dow trip steadily downward by the day.

What did FDR do in those critical 9 months? He closed all banks for nearly a week, confiscated most privately-held gold, forced a separation of commercial and investment banking, brought in interest rate controls and de facto deposit insurance, and devalued the US dollar in the Gold Standard.

Yet in the current economic crisis, the one policymaker taboo is telling managers, debt holders, and counterparties to large financial institutions that the jig is up. Note in particular that AIG's continual need for cash is due to the fact that the same ratings agency geniuses who rated it AAA in a boom keep downgrading it in a recession, forcing it to post more collateral for the financial institutions on the other side of its contracts.

Isn't it time to tell those other institutions to piss off?

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