This is a Cato special podcast. I'm Keila Brown. Treasury Secretary Henry Paulson is

center stage in an effort to stabilize financial markets at a possible cost to

taxpayers of $700 billion.

But what led up to this crisis?

Was it unchecked capitalism run amok?

Government-sponsored enterprises that distorted markets.

Bad rules designed by less than benevolent social planners,

or perhaps do we just not know as much as we thought we did about macroeconomics?

William Niskanen, the chairman of the Cato Institute, comments.

Well, Secretary Paulson and Chairman Bernanke clearly feared a collapse of the financial system,

apparently based upon data that they were not trading with each other,

there was no flow of funds across institutions, all of which they perceived Thursday night.

And by Saturday, they had decided that we needed a massive bailout,

federal purchase of a lot of bad paper,

mortgages and mortgage-backed securities.

Now, they have not told us about what the what it is that

they saw on Thursday and that makes a little difficult to evaluate whether the action they propose is either necessary or proper.

I think we do have to be careful about it. They are asking for basically a blank check for 700 billion dollars, billion dollars, to buy bad paper from the financial community, mostly mortgages and mortgage-backed securities.

And I think that they will not be able to target the purchases to particular kinds of institutions.

They started off by saying that they would not purchase paper from foreign banks.

But they've changed that because they recognize that foreign banks can sell that bad paper to American banks,

who then would sell it to the Treasury.

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