Reasons for the Crisis: Message 3/10

iii) By now, there is little else policy-makers can do.  

After some understandable, initial hesitation, the overall policy response to the crisis has been reasonable.  But the contraction in global aggregate demand is likely to be so big that, even with the best of coordination, it cannot be offset by fiscal stimuli and monetary easing.   The auction system for trading in toxic assets recently announced by the US is a step in the right direction, but it will take a long time to work, if it works at all.  Bank nationalization will not add much;  de facto, it already happened.  There is no first-best policy responses left (the numbers are just too large and the information too weak).