Thursday, October 09, 2008


Krugman has a good take on the state of affairs, I think. It isn't 100% clear why Paulson and pals have insisted on misdiagnosing the problem, though I do have a theory. The "it's a liquidity problem" take is a way of saying that the system is awesome, but there's been a very brief and irrational crisis of confidence which has caused things to freeze. In this version, all of Paulson's pals aren't to blame, they're just victims of a silly moment.

What's going on here has led to liquidity problems, but not simply because people are a bit nervous. There are liquidity issues because the money is ALL GONE NOW.