The Bailout

The Democrats are hitting the right buttons, such as bipartisan oversight of the fund, limits on golden parachutes for failed executives, and relief for Main Street. The deal is not yet final, so we will have to see.

But it seems that two important options are not on the table, and I think they should be.

(a) We could learn from Sweden’s valuable experience from 1992, when they faced a remarkably similar problem (see yesterday’s NY Times and IHT). Rather than buying the worthless assets from the banks at inflated values, the government could buy stock in the banks themselves at the current, low values. This would pump the needed capital into the system to restore balance sheets. It would give the taxpayer a much better chance to be repaid, as the government could resell later at a profit when conditions stabilize. It would remove the reward to investors who let their executives be greedy. Finally, as a stockholder, it would give a real chance to the government to prevent those undeserved golden parachutes.

Apparently, that smacks of “nationalizing the banks”, an anathema, however temporary. Too socialist for this anti-regulation/ pro-bailout government.

(b) We could let the financial system heal itself, and use the trillion dollars to build a modern social safety net and ease the pain to the population. Long term, this would leave the economy stronger and not reward the greed and mismanagement as we are doing now.

Right now, we have to avoid a feeding frenzy on Wall Street when this money is released. Good luck.

Bob