Four Down, One to Go

| Wed Sep. 24, 2008 12:38 AM EDT

FOUR DOWN, ONE TO GO....Here's some interesting news:

Goldman Sachs Group Inc. said it will get a $5 billion investment from billionaire Warren Buffett's company, marking one of the biggest expressions of confidence in the financial system since the credit crisis intensified early this month.

....The Berkshire investment will be a big boost to Goldman. Even though the firm hasn't posted a quarterly loss since the credit crisis began, its profits have waned and its stock got hit last week. It has examined a number of options aimed at bolstering its capital position.

So let's count: Fannie and Freddie have been bailed out. Bear Stearns and Merrill Lynch have been acquired. Lehman is gone. Goldman Sachs is apparently in good shape (I'm willing to take Warren Buffett's word for it, anyway). The big conglomerates (Citi, Chase, Bank of America, etc.) don't seem to be under any serious pressure.

So who does that leave? Morgan Stanley, of course. But who else? For better or worse, bailouts are usually limited to firms so big that their failure would cause systemic meltdown. So who are we planning to bail out? Little firms? Big firms that would survive regardless? Insurance companies? Hedge funds?

I'm not questioning the basic need for a rescue plan. I'm just wondering who needs rescuing right now. For more, see this post from Yves Smith, which quite plausibly argues that although a bailout may be necessary, it's not urgent after last week's intervention in the money fund market. If this argument is correct, it means we don't need to be stampeded into action. We can afford to spend some time to figure out who really needs help and what the best mechanism for helping them is.