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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 11:24 pm (UTC)contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.
I'm not sure I get this. Treasury pays for the questionable assets (in dollars, I presume) and not only gets the assets but "contingent shares" in the financial institution equal to the (apparent?) value of the risky assets. So huh? For the price of the assets we also get shares in the firm as well, in a two for one deal? I guess a lot depends on the meaning of the word "contingent."
(I'm not actually going to read the Dodd plan. It's 44 pages, and I won't understand it. I won't, I tell you. I won't!)