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Monday - 9/22/2008, 12:21pm EDT
Senior Internet Editor
Pressuring Congress, President Bush says the "whole world" is watching to see if Republicans and Democratic lawmakers can quickly agree on a plan to halt a financial meltdown without adding extra elements to the legislation.
FederalNewsRadio asked Diana Furchtgott-Roth, former chief economist at the Department of Labor, and current senior fellow at the Hudson Institute, what will the government have to do to handle this?
We have all these regulators: the SEC, the FDIC, the CFTC, the Federal Reserve and none of them put any brakes on this happening at all. Not only did they not put any brakes on it, but then, when the institutions got in trouble, they didn't allow them to go bust.
I think that you can't have both. Either you have to have some kind of overt regulation and transparency, or you have to be willing to say "If I'm not regulating you, if you're playing by your own rules, you're not going to saddle the taxpayer with any bills."
"It's sad that it has come to this particular point," says Furchtgott-Roth, but she sound hopeful about the administration's current plans.
I think that now things are in this situation, this is probably one of the best alternatives that could be done, because the question is - is one looking at the government as a lender or as a loaner of assets. If the government says it's going to be just guaranteeing these banks, it lets them (go) on doing whatever they want basically with a free hand. It's as though someone said to you "Look, I'll guarantee whatever you want to put on your credit card." You'd go on a big spending spree. So with the government as the owner of these assets it can have more direction over them, and cull out/separate the bad loans from the good loans, reorganize it, and then the taxpayer would benefit when these assets are sold.
Blaming short-sellers for the situation, says Furchtgott-Roth, is like covering the eyes of the boy who saw the emperor had no clothes on. "If you stop investors selling short, then it means that the price signals that these short sellers send are not noticed by the market." The bottom line says Furchtgott-Roth is that "we need all the signals that we can get."
Blaming speculators, I think, is not really the answer. I mean, speculators were blamed for the run up in oil prices. Now the oil prices are going down again, and it's not that there's been any difference in speculation: it's just supply and demand and market conditions.
(The Associated Press contributed to this report.)
On the Web:
Forbes - Short-Selling Is Not Market Abuse (commentary)
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