you almost feel sorry for Henry Paulson....

In one speech yesterday, Hank Paulson talks about how Americans have come to expect the Federal Reserve to step in to avert a crisis, but then complains that the Fed does not have the clear statutory authority to do this. To resolve this gap, he's requesting that we give Federal Reserve the authority to access necessary information from complex financial institutions - whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution - and the tools to intervene to mitigate systemic risk in advance of a crisis. Why is this only coming to light now? Why was he not demanding such reform months ago, if it's really the right way forward?

Okay, so Henry thinks we need to be able to bail out financial institutions, and the Fed needs more transparency in order to do that right. Now that financial risk is hitting panic level, he wants the Fed to be able to access data in financial institutions, so the Fed can step in to avert a crisis. But in the next breath, he says that financial institutions must be allowed to fail. Is it any wonder the market's having trouble reading his signals?

However, when financial institutions are protected from the negative impacts of risk, that will only encourage further risky behavior. Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."

The Bush administration needs to show some leadership in this issue, as there is a need for swift action, and that requires everyone at least pointing in the same direction....