THE RISE OF THE TECHNOCRATS….The New York Times on the Paulson bailout plan:
The rescue package, if successful, would make the recognition of losses and the inevitable winnowing of the banking system more an orderly retreat than a collapse. Yet that pruning of the banking industry must take place, economists say, and it is the government’s role to move it along instead of coddling the banks if the financial system is going to return to health.
….”The lesson from Japan is that tough love for the banks is what’s needed,” said Kenneth Rogoff, an economist at Harvard. “In the current crisis, you do want to get rid of the bad assets from the banks, to get markets working again. But the key is going to be in the details of how the bailout works. You don’t want it to be a subsidy in disguise that keeps insolvent banks alive. That would just prolong the economic pain.”
Words to live by. The Treasury technocrats and asset managers who end up running the bailout are going to have a tremendous influence over whether it’s successful or not. If they do it right, the plan should shine a bright light on which banks need to fail and which ones can be saved. If they do it wrong, we could be in for a long, gray twilight of economic stagnation.
In other words, we all better cross our fingers and pray that the Treasury department still has good technocrats these days. I wonder what the odds are?