Armed and Dangerous

``At its heart Paulson's argument assumes the GSE's problems are simply a function of confidence. He believes that if the U.S. Treasury signals that it will stand behind both firms to the bitter end, then investors would have no reluctance in buying their bonds. But assuring that creditors will be repaid (albeit with cheaper dollars) does nothing to address the root cause of the problem, which is that both firms are losing money on their loan portfolios, and on the loans that they insure.''