World-News

In These Times
by David Sirota

10/10/08

Is Henry Paulson a crony-communist or a businessman? The answer could be the difference between economic disaster and recovery. Understanding Paulson’s role in stopping — or fueling — the credit crisis requires a review of two axioms from Economics 101: 1) A credit crisis occurs when banks stop lending and 2) The amount banks can lend is a multiple of the capital in their vaults. Therefore, ending a credit crisis means prompting new lending — and that means maximally increasing bank capital. … If Paulson pays banks exactly what their mortgages are worth, he will not increase banks’ capital … he will merely convert one asset (mortgages) into another (cash), making no impact on the credit crisis...

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Welcome to the Third World, America
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Informant: Thomas L. Knapp



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