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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.
no subject
Date: 2008-09-22 11:10 pm (UTC)Funny thing, an hour ago, as if I were anticipating your question, while actually having little idea what "equity" means, I visited Wikipedia, which says, "In accounting terms, after all liabilities are paid, ownership equity is the remaining interest in assets."
And when I look up "stake" I find it is "a share of ownership of a company."
So, anyway, putting those two concepts together, clearly we have...
Er, so I went to Google and typed "equity stake" and "definition" into the search box and got this quick hit:
No results found for "equity stake". Multiple Words. The words "equity stake" do not appear together, but you can try a search on the individual words.
So, there you have it.
no subject
Date: 2008-09-22 11:57 pm (UTC)no subject
Date: 2008-09-23 01:03 am (UTC)Perhaps it is just a stake in the company's value after all liabilities are paid? Sort of like the difference between net income and gross income.
OH LOOK!
(sometimes called net assets) is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' equity/fund...
And if we look up "liabilities," we get:
The accounting equation relates assets, liabilities, and owner's equity:
Assets = Liabilities + Owner's Equity
Hmm.