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"No Bailouts" So You Say Mr. Paulson?
Yesterday, I discussed the consequences of the proposed bailout of Fannie and Freddie.
While Paulson has hinted that there will be no government bailout for Freddie and Fannie, he clearly left the door open to intervention.
"It is clear that some institutions, if they fail, can have a systemic impact." However, financial players need to be disciplined in managing risk and not expect the government to fly to their rescue, he added.
"For market discipline to effectively constrain risk, financial institutions must be allowed to fail," he said.
Let’s take a look at the implications of what he has said. First you need to understand that a “bailout” can be interpreted in many different ways.