![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
koganbotToday's column from Paul Krugman: Cash For Trash
Krugman's ongoing blog
I'd summarize Krugman's argument as follows: (1) If we the gov't buy the bad assets at market value we're not going to get the financial firms out from under, (2) if we buy the assets at way more than market value we will be helping the firms by giving a windfall to the firms (and their stockholders and executives) at taxpayer expense, so (3) what we should be doing instead is give capital straightup to the firms - without buying bad assets and without having to guess the value of what we're getting - in return for part ownership of the firms, so that we can demand that some benefit of the bailout goes to the public.
In any event, Senator Chris Dodd, who chairs the Senate Banking Committee, is floating a counterproposal that I haven't looked at but at first glance seems to Krugman to be a step in the right direction. Here's a Bloomberg.com article on the Dodd proposal and here's a text of the proposal.
Says the article:
The legislation requires Treasury to take an equity stake equal to the purchase price of the assets being bought. If the company isn't publicly traded, the government would take senior debt instead, placing it in the front of the line of debt holders for repayment in the event of a bankruptcy.
Dodd's proposal also would create a five-member oversight board to supervise the Treasury secretary's purchase and sale of distressed mortgage debt.
Krugman's ongoing blog
I'd summarize Krugman's argument as follows: (1) If we the gov't buy the bad assets at market value we're not going to get the financial firms out from under, (2) if we buy the assets at way more than market value we will be helping the firms by giving a windfall to the firms (and their stockholders and executives) at taxpayer expense, so (3) what we should be doing instead is give capital straightup to the firms - without buying bad assets and without having to guess the value of what we're getting - in return for part ownership of the firms, so that we can demand that some benefit of the bailout goes to the public.
In any event, Senator Chris Dodd, who chairs the Senate Banking Committee, is floating a counterproposal that I haven't looked at but at first glance seems to Krugman to be a step in the right direction. Here's a Bloomberg.com article on the Dodd proposal and here's a text of the proposal.
Says the article:
The legislation requires Treasury to take an equity stake equal to the purchase price of the assets being bought. If the company isn't publicly traded, the government would take senior debt instead, placing it in the front of the line of debt holders for repayment in the event of a bankruptcy.
Dodd's proposal also would create a five-member oversight board to supervise the Treasury secretary's purchase and sale of distressed mortgage debt.
Treasury agrees to take equity stake. Wait! It doesn't agree.
Date: 2008-09-22 10:51 pm (UTC)After Monday's bailout talks, Rep. Barney Frank, a top Democrat, told CNBC that the Bush administration had agreed to Democratic demands that the government take an equity stake in the companies seeking a bailout. But the Treasury later denied there was any such agreement.
Frank said the Treasury also agreed to an oversight board to monitor the bailout and that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But he said lawmakers and Treasury officials disagreed on the emotional issue of whether the executives at the companies in need of rescue should be required to agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.