Wednesday, September 24, 2008

No Bailout without Equity

I recommend this piece by David Leonhardt (NY Times).

Leonhardt, whose columns on economics are among the best writing available on the topic, emphasizes the importance of taking an equity stake as a means of reducing the ultimate cost of the bailout to the taxpayers.

The more that the government overpays for the assets, the larger the subsidy it’s providing to Wall Street — and the more it is pushing up the share prices of Wall Street firms.

As Senator Jack Reed, Democrat of Rhode Island, notes, the equity stakes allow the government to recapture some of the subsidy down the road. It’s a self-correcting mechanism.


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posted at 1:11:00 PM by Neil

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