"I believe that the government will do another Hail Mary pass, with massive
guarantees to the short-term commercial credit system and wide open
short-term lending by the Fed (2 or 3 times expansion of the Fed balance
sheet). If done on a sufficient scale this action will probably work for a
while. But none of these financial measures affects the accelerating
recession -- which will in turn place more pressure on the financial
sector."
"This is indeed a cardiac arrest for the shadow and non-shadow banking
system and for the system of financing of the corporate sector. The shutdown
of financing for the corporate system is particularly scary: solvent but
illiquid corporations that cannot roll over their maturing debt may now face
massive defaults due to this illiquidity. And if the financing of the
corporate sectors shuts down and remains shut down the risk of an economic
collapse similar to the Great Depression becomes highly likely."
Krugman is already talking about Bailout 2.0 well before January 20.