Financial Meltdown: The Day After

Dean Baker
TPM Café (Talking Points Memo), September 28, 2008

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I have been awoken from my dogmatic slumber (credit goes to the spouse). Let's suppose that the worst happens and the financial system freezes up and none of us can use our credit cards or ATMs. This is truly an awful situation that we should absolutely try to prevent.

However, if we get here, the world does not stop. The Fed and Treasury will have to step in and take over the banks. There would be no alternative.

This is exactly what many economists argue should happen anyhow (I'd put myself in that boat, with some qualifications). So the outcome of the worst case scenario is a really frightening day in which the whole world financial system is shaken to its core, followed by a government takeover of the banks. Eventually the government straightens out the books and sells them off again. But the real threat here is not to the economy, it is to the banks.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.