Tough Love

The WSJ Ed Page (and I) agree about some tough love for the financial system:

The result will be a very rough Monday, but the government had to draw a line somewhere or it would have become the financier of first resort for every company hoping to buy a troubled firm. Especially with the Fed discount window now wide open to many more financial institutions, and to many kinds of collateral, Treasury Secretary Hank Paulson's refusal to blink won't get any second guessing from us. If Lehman is able to liquidate without a panic, and especially if its derivative contracts can be safely undone, the benefits would include the reassertion of "moral hazard" on Wall Street. The Merrill acquisition before it faces a Lehman-like run should also reduce the risk of contagion.

Besides, a complete meltdown of the banking system should take some San Dieagans mind off of football

UPDATES: Let's tack on some quotes of the day:

-- "Lehman Brothers, aren't they the guys who make the cough drops?" -- Don Luskin on Kudlow & Co. last week

-- "Remember, if it’s black smoke, they haven’t chosen a Pope come up with a deal for Lehman; if it’s white smoke, they have".-- a rare QOTD appearance for Paul Krugman (ht:ee)

-- "You know the world is coming to an end when Lehman Brothers closes its doors, and the Cubs pitch a no-hitter." -- Club for Growth's Andrew Roth

Economics and Markets Posted by jk at September 15, 2008 9:44 AM