The Dynamics of Interventionism at Work

It appears that Paulson's "rescue plan" is generating significant unintended consequences:

Far from stabilizing the financial system, the federal bailout barrage appears to have left investors shell-shocked.

Henry Paulson, the Treasury secretary who along with Fed chief Ben Bernanke has headed up efforts to contain the financial sector's problems, has indicated he will act as necessary to restore confidence.

But so far, that's not happening - and some market watchers are warning that rescues such as Tuesday's emergency loan to AIG (AIG, Fortune 500) are actually making it harder for financial firms to raise the money they need to muddle through the credit crunch.

That worry has in turn only created further instability, feeding massive selloffs like the ones Wednesday on Morgan Stanley (MS, Fortune 500) and Paulson's alma mater, Goldman Sachs (GS, Fortune 500), Wall Street's two remaining independent investment banks. Morgan fell as much as 38% to a 52-week low and Goldman slid 25%, dropping below $100 a share for the first time in three years.

Full article here.  More on the dynamics of interventionism here and here.