The strategy to stabilize the US financial system is based on the theme of providing enough liquidity in the market until the banks and brokerage firms can develop plans utilizing all the features of the loans and guarantees implemented by the Fed/Treasury. These plans will contain two overall principals; raise enormous amounts of cash; and change the risk profiles for conducting future business. The first principle allows the banks to survive a severe downturn without lending money. The second principle will be their excuse. Goldman and Morgan have started to implement the sale of 3 year notes denominated in Euros to add to their own bulging money piles supplied by the US. These notes are guaranteed by the FDIC and pay about 1 to 1.5 over comparable market instruments.
The new administration will have to endure the criticism of a general recovery strategy which has the Fed/Treasury saving their own at the expense of the economies of families across the country. What Bernanke and Paulson have delivered thus far is radical intervention only when viewed against how the notion of free markets have come to rely so heavily on social coffers to save a select group of private investors. If the banks are still not lending or qualifying loan profiles drastically restrict growth, the real meltdown will be the burden of the 'surplus population', as Dickens would say.
