Thursday, September 25, 2008

That would be a psychological matter...

An article on describes the view of Ben Bernake (chairman of the Federal Reserve) on the current role of psychology in financial markets. The context is the 'Bush Bailout' that is currently being widely debated. Excerpt below.

"You ask me my opinion as an economist, but this is a matter for psychology."

That's what Mr. Bernanke said to Senator Schumer, who has been pressing both Mr. Bernanke and Treasury Secretary Paulson for some agreement that would provide a lesser amount (say $150 billion) initially, and then have the next administration vote on providing more funds.

Mr. Bernanke is wisely resisting this gambit. He noted that "dribs and drabs" was not a good way to deal with what is essentially a confidence issue. The Street will interpret passage of this kind of deal as a sign of lack of commitment...

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