Tuesday, November 18, 2008

Uncertainty, not liquidity 

Though I understand that policymakers must be flexible at times to maximize end results, the more questions government sends into the marketplace, the longer it will take to reach recovery. Our financial system is desperate for signs of certainty, but the Treasury Department�s implementation of TARP has been far from clear and consistent. I am hopeful that this hearing will serve to answer many of the questions we all still hold about the direction of the TARP.
Rep. Michele Bachmann today on the Treasury's change of course on TARP. This seems to echo Russ Roberts' column last week:
When no one knows how the rules of the game are going to change � and they seem to change from week to week � who wants to take a risk? Who wants to borrow money? Who wants to invest? Business and consumers are hunkering down, waiting for the storm of change to pass.

The problem isn't liquidity.

It's uncertainty.

Paulson doesn't realize that his erratic attempts at creating liquidity are creating the uncertainty that makes liquidity meaningless.