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Text size [+][-]  Saturday November 7 2009GLOBAL EDITION

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19 Sep 2008 10:52

Can’t just kiss it better



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Hank Paulson, the US Treasury Secretary, and Ben Bernanke, president of the Federal Reserve, met with leading members of Congress on Thursday to discuss a potential government support plan.

At a press briefing, Paulson said, "The root cause of distress in capital markets is the real estate correction and what's going on in terms of the price declines in real estate. So we're coming together to work for an expeditious solution aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets."

Rep. Barney Frank, the chairman of the House Financial Services Committee, said legislation could be acted on next week.

Markets jumped for joy at the prospect that Uncle Sam will absorb banks’ illiquid securities. But even if that happens - and it will expensive and rife with moral hazard – it probably won’t stop the wave of deleveraging. That might require a cruise missile rather than a bazooka.

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