Krugman On Difference Between Illiquidity and Insolvency

Once again, Paul Krugman demonstrates why the New York Times pays him to write.

He clearly and concisely describes why the current problem is insolvency, and not illiquidity.

He then goes on to explain just why the Fed really cannot fix this. If you have a run on a sound bank, an quick loan to infuse of cash works, because it gives everyone time to get their heads screwed on straight again, but if a bank is busted, a loan, no matter how large cannot help.

Basically, it means that the Fed, which after all only loans money, and sets up rules for short term loans, cannot help.

Go read his article.

The last line, which is a note from the editor, that "David Brooks is off today," is also a bit of an unintentional hoot.

David Brooks is a bit off every day.