Has Barack Obama’s presidency already failed?
Hoping for the best is foolish. Yet hoping for the best is what one sees in the stimulus program.
All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.
Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell.
Under the second view, a sizable proportion of financial institutions are insolvent. Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so.
The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once.
