Wednesday, September 17, 2008
In this Wall Street Journal op-ed , Holman Jenkins asks a question that would probably be better asked on a different day, but he happened to ask it today, "Is the U.S. government running out of money to rescue banks (and insurers)?"
Here's a discomfiting thought: All along, one assumption has animated the Fannie and Freddie bailout: If their debt is seen as Treasury debt, all will be well with their mortgage funding.The Fed running out of money? That's ridiculous.
What if the assumption is wrong? What if the world's investors, seeing the federal government willy nilly expanding its commitments in all directions, begins to lose appetite for Treasury debt itself?
That thought likely lay behind Ben Bernanke and Henry Paulson's hesitation to aid AIG, though finally the Fed seemed ready to cough up in a truly big way last night. Even those who closely follow the credit crisis probably expected to see banks and savings institutions heavily laden with mortgage debt end up on the triage pile -- not an insurance company known for its pioneering work in China, its giant aircraft leasing business, and the like.
Fed intervention seemed a no-brainer, given the assumptions and priorities that have driven such decisions in the past. But it's hard to escape the suspicion that, despite hearty talk of limiting "moral hazard" and a late-developing urge to "stand on principle," any dithering really came because the Fed is worried about running out of money, fearing even more gargantuan calls on its resources down the road.
The Chinese wavering in their commitment to the dollar? That's ridiculous too.
This just in ... a related story from Reuters: