Money Ball - What works, and what doesn't, in a credit crisis

OpinionJournal.com ^ | August 17, 2007 | Editorial Staff

[gpapa]

Treasury Secretary Hank Paulson gave an upbeat interview to The Wall Street Journal Wednesday, assuring everyone that the current credit market turmoil will "extract a penalty" but not lead to recession. We tend to agree, but Mr. Paulson would have done better spending his time smoothing over KKR Financial Holdings's commercial paper blowup instead. His words didn't stop another wild market ride yesterday.

The point is that, in a market dominated by fear, what Mr. Paulson says means much less than what he does. The world is undergoing a change in investment quality preference, as they like to say in market circles, which means a flight to such safer assets as cash or Treasuries. That flight has caused a credit seizure for anything tainted with suspect mortgage assets. Losses are inevitable, and to the extent they punish bad decisions even desirable.

But what markets want from the Treasury and the Federal Reserve is evidence that they're skillful financial fielders. That is, that they're able to handle the financial choppers before they get through the infield and create greater trouble. This may not be headline-grabbing, but it's the best way to restore confidence and thus liquidity. The entire point is to avoid surprise headlines

[DemEater]

If he wasn’t a political hack, he would be singing a different tune. When is the last time a political appointee predicted a recession on their bosses watch?

[Moonman62]

As late as last week he was still saying the subprime mess was contained. Wall Street doesn’t like it when people like Paulson, Bernanke, and W open their mouths and sound like the don’t have a clue as to what is going on.

[BlabItGrabIt]

Until the Chairman plays ball and cuts rates, the economy will fall in spite of facts and opinions.