Mallaby On Where We're Going

Mallaby again:

"Central banks, which face fewer political constraints than finance ministries, have rapidly come up with a plan to calm everybody's nerves, though the patient has not yet responded. The Fed's version of the policy comes down to this: If Bank A won't lend to Bank B, let's have Bank A lend to us and then we'll lend to Bank B; and if Banks A and B won't lend to companies C, D and E, then we'll get between them also. In this way, the full faith and credit of the U.S. government can be made to substitute for the lack of faith in private players.

The Fed's plan is already driving extraordinary growth in its borrowing and lending. This is the most sudden expansion in the state's role in the economy at least since the Depression. But the plan is sound. It does not involve printing money or igniting inflation. It shouldn't cost taxpayers much, if anything. Once investors see that the Fed's approach works in practice as well as in theory, there will be at least some reason for the markets to settle down."

I agree, especially here:

"In this way, the full faith and credit of the U.S. government can be made to substitute for the lack of faith in private players."

This is where we've been going.