Treasury Secretary Henry Paulson wrote an article for todays New York Times Op/Ed page. Topic: Henry Paulson. In efforts for full disclosure, the article, entitled Fighting the Financial Crisis, One Challenge at a Time, was actually an account of where we stand a few short months after the announcement of the crisis. As Secretary Paulson was the one who declared the crisis, asked for the money, and has discretion over its usage, he was, for all intents and purposes, editorializing himself.
So where do we stand? It isn’t the easiest question to answer, as we can garner from Paulson’s attempt. The truth is, hiding behind assumptions and hopeful declarations, that we really don’t know. ”There is no playbook for responding to turmoil we have never faced,” Paulson writes. There is no real meeting of the minds, no consensus. Even the facts are in doubt, as information delays and lagging effects demand. The decision not to use the Troubled Asset Relief Program (TARP) to offer any troubled asset relief underscores the problem. Less than one month after we were told that troubled asset relief was the one and only thing that could save our economy, we are being told that there are better ideas.
It seems a lot like trial and error. And this may be the only technique because the one common ground for all economists is that we have never seen anything like this. Even the Great Depression did not share the scale of this financial crisis. The good news is that we are able to analyze data more quickly and efficiently than ever before (mostly due to the facility of the exchange of information). Thus, we can react to our trials and errors faster than ever before. But the positive news ends there, because the costs of our trials and errors is more expensive than ever. And money isn’t quite as cheap as it once was.
I do not envy Mr. Paulson or his staff (especially Neel Kashkari). They face an uphill battle, equipped with theories and techniques that helped cause the problem, and answering to an angry population with the only rhetoric they know, a transparent mask of the fact that they simply don’t know. That money is the solution to monetary problems would be a dubious claim if our officials had any other effective tools at their disposal. It seems, however, that we will continue to throw good money after bad, and hope something works. Sooner or later, however, we are going to have to fix the problem. Mr. Paulson, in his optimism, will not be around to guide that phase, but he will certainly be around to editorialize it. We’ll see if he maintains his cheery confidence once his name isn’t attached so conspicuously to the crisis.
