Bargain Hunting in the Financial Sector

For one thing, members of the Financial Accounting Standards Board, the architects of the proposed rule change, are surely not going to do anything to aggravate what remains a serious global financial crisis. They can't be that reckless. They can simply "study" the proposed changes and solicit opinions. This could take years if necessary.

Moreover, the Treasury and the Federal Reserve are not going to stand idly by and let the big mortgage investors, with their implicit government guarantees, become insolvent. If they were willing to step in to save a Bear Stearns (at what looks increasingly like an over-generous $10 a share), they are certainly going to act at least as forcefully when it comes to Fannie Mae and Freddie Mac. I'm not recommending they should be bailed out, since there's no need at this juncture, but they could be if necessary. The government could inject whatever capital might be necessary, gaining an equity stake in return. (Should it come to this, which I doubt, it would at least end the awkward "quasi" government role these companies play.)

Which brings me to the broader point that for leaders in the U.S. and other members of the G-8 meeting in Japan, the stability of the global financial system must be a high priority. They opened their summit this week by meeting with African leaders to discuss slow progress for HIV/AIDS relief, a laudatory task to be sure, but not one that suggests we're facing an imminent global financial crisis. If we were, they have the collective tools to take action.