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...capital shortage is a capital shortage is a capital shortage," says Anil Kashyap, professor of economics and finance at the University of Chicago Graduate School of Business. To Kashyap and a number of economists, this has been the problem from the beginning, and any proposed solution that doesn't address the basic issue of recapitalizing banks won't succeed in the long run. Treasury has now come to the same conclusion: the best way to shore up both the banks' balance sheets and their confidence in lending (to each other, to businesses, to us) is to become an investor...
...banking system needs capital. Now. So it makes sense for Treasury to address the problem directly. How much? Good question. Will it work? "It should help," says Kashyap. "The question is, Do they execute in a way that doesn't botch it? They've finally bitten the bullet; now they've got a chance to succeed...
...problem with those answers, with most answers, is that they strive to contain cause and effect within a single trading day when the real story is much, much bigger. There is "distrust in the marketplace - and in the government's ability to handle the crisis," says Peter Cardillo, chief market economist at investment shop Avalon Partners. "That's basically feeding on itself...
This institutional problem pales beside the political one: when crisis strikes, Europe almost never acts like a true union. After French President Nicolas Sarkozy summoned the leaders of Britain, Germany and Italy to Paris on Oct. 4, German Chancellor Angela Merkel coolly torpedoed his proposed $409 billion Europe-wide financial rescue plan. No money for the greedy fools of other lands, she seemed to say, only to then guarantee German private bank accounts and save Hypo Real Estate. That followed similar moves by Ireland and Greece. And Britain's Gordon Brown will always be loath to see Brussels...
...spend up to $88 billion in taxpayers' money to secure it. Their emergency rescue plan was hatched over weeks but finalized in such a hurry that bleary officials labored overnight to finish it before the skittish markets opened. At a morning press conference, both men maintained that the problem started with the U.S. sub-prime crisis; Brown refused to answer questions about how Labour policy over more than 10 years in office might have contributed to the situation. "This is the time to talk about the future," he said...