I can’t help but remember Paulson’s testimony to Congress where he used the (very cool) bazooka metaphor (i.e., if the market believes the government can step in & utilize a back-stop to save Fannie & Freddie, there will be more confidence in the markets). This approach worked for a while, then things reversed again in the stock market a few months later.
The $700 billion bailout seems like Round 2 of the Paulsonesque-thinking of economics…there are no specifics presented to justify such a large bailout, yet by providing a big $ number, this sends a strong message intended to calm the markets and prevent a run on certain banks.
The bazooka thing only worked for a short time. Perhaps Round 2 of Paulson’s psychological game will last a bit longer, but I’m not optimistic. Somebody’s gonna have to pay for this (you & me!).
Paulson needs to provide another pithy comment for this bailout...something like, "Walk Softly & Carry a Big Howitzer".
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