U.S. Government considering “Permanent Solution” to financial crisis

September 18, 2008 by · Leave a Comment
Filed under: Economic News 

This is good, now it looks like the plan is instead of letting the market do what it is suppose to, ie: reward companies for making prudent choices and penalizing companies for making bad decisions. Instead it looks like the plan is to take equity stakes in all the financial firms that make poor decisions over the years. In a free market we would see the strong survive and a precedent set no matter how painful so we do not repeat it in the future along with any additional regulation that needs to be in place to plug any loopholes that were used during the excess stag of the boom. .02

News Release:

U.S. Treasury and Federal Reserve officials are considering a “permanent” plan to address the financial crisis, said Senator Charles Schumer, who proposed a new agency to pump capital into troubled financial companies.

“The Federal Reserve and the Treasury are realizing that we need a more comprehensive solution,” Schumer, a Democrat who chairs the congressional Joint Economic Committee, told reporters in Washington today. “I’ve been talking to them about it.”

Schumer proposed an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages to make them more affordable. His remarks indicate momentum is building for some wider plan after the Fed and Treasury’s takeovers of Fannie Mae, Freddie Mac and American International Group Inc. this month.

Discussions with the Treasury and Fed focus on “trying to do something more permanent” after the series of government interventions, the New York senator said. For the Fed, “it’s hard for them to do monetary policy, which is their primary task, and then run all these businesses,” he said.

Fed officials announced an $85 billion takeover of AIG two days ago, hours after leaving their benchmark interest rate unchanged in a decision that rebuffed some investors’ calls for a cut.

Fed Functions

“There is some preliminary discussions about how to sort of encapsulate and separate the two — both to keep focus on monetary policy by the main Fed leaders, but also to prevent any conflicts of interest,” Schumer said.

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