Where, oh where, is America’s Vladimir Putin, who will drive out the oligarchs who have stolen the country’s treasure and debased its currency? – Spengler, Asia Times
Stopping a Financial Crisis, the Swedish Way
Deal Book, 23 September 2008
A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.
The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.
Putting taxpayers on the hook without anything in return could be a mistake, Urban Backstrom, a senior Swedish finance ministry official at the time, told The Times. “The public will not support a plan if you leave the former shareholders with anything,” he said.
Spengler believes Americans are gamblers who will save the bank to keep the credit flowing.
Luigi Zingales (.pdf) explains why debt-for-equity is not on the table:
The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition. The appeal of the Paulson solution is that it taxes the many and benefits the few. Since the many (we, the taxpayers) are dispersed, we cannot put up a good fight in Capitol Hill; while the financial industry is well represented at all the levels. It is enough to say that for 6 of the last 13 years, the Secretary of Treasury was a Goldman Sachs alumnus. But, as financial experts, this silence is also our responsibility. Just as it is difficult to find a doctor willing to testify against another doctor in a malpractice suit, no matter how egregious the case, finance experts in both political parties are too friendly to the industry they study and work in.
Paulson’s Folly
Steve Maich, Maccleans.ca, 22 September 2008
We’ve had market crashes before. We’ve had bad recessions before. They’re not nice, but we survive them. Part of what has helped us survive is the distinction between private enterprise and public finance. Public finance should be used to address the damage from market crashes. If you had a trillion dollars to spend, you could do an enormous amount to help people hurt by a market crash. With a trillion dollars, you could create a public program to halt home forecloures, for example. You could go on a massive public infrastructure spending program to employ all the tradespeople hurt by the housing collapse (and address a huge and simmering long–term threat to the economy at the same time). That’s just two examples.
They have managed to terrify people, in order to convince them that this is the only way they could prevent a return to the Great Depression. I think they’re saddling our generation, and our kids generation with a greatly diminished future, for the sake of temporarily bolstering the status quo, and bailing out a handful of incredibly irresponsible institutions that ought to be allowed to fail.
hat tip for all links to Housing Crash News from Patrick.net (exception: Zingales)