31 Oct 2008

Paulson’s Plan Making Things Worse

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So I argue in a Sacramento Union piece. A sample:

When the House of Representatives failed to pass the original request for $700 billion from Treasury Secretary Henry Paulson on Sept. 29, the Standard & Poors 500 (S&P) fell about 8.8 percent. This supposedly proved how vital the rescue plan was for the health and stability of the economy. And yet on Oct. 15—-after the porked up $850-billion bill was passed—-the S&P fell more than nine percent, its biggest drop since the 1987 crash. It’s not just single-day plunges that have gotten worse.

In the year prior to the collapse of Lehman Brothers in mid-September, the average daily move (up or down) in the S&P was 0.8 percent. And yet since then, the average daily move has increased to 3.1 percent. If the government’s measures were supposed to restore calm to the markets, they have been a huge failure thus far. Many free-market economists have been warning that this would happen.

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