Tuesday, September 23, 2008

Rebuilding Civilization In America: "Don't Socialize The [Financial] Losses, Without Socializing The [Civilizational] Gains

"Don't socialize the losses without socializing the gains."

"An Emerging [Economic] Consensus Against the Paulson Plan: Washington Should Force Bank Capital Up, Not Just Socialize the Bad Debt," Dr. Jeffrey Frankel, James W. Harpel Professor of Capital Formation and Growth, John F. Kennedy School of Government, Harvard University, September 22, 2008.


"The expected legislation from Congress is likely to include quid pro quos from financial institutions that sell distressed assets to provide more assistance in general to homeowners to restructure mortgages to make them more affordable. In addition, we would expect provisions to ensure that there is thorough and independent oversight of the operations of the new agency, with periodic reports to Congress, and stipulations over operations to ensure full arm's length transactions. There may also be provisions in the legislation whereby the federal agency may in certain cases receive rights to equity ownership in the financial institutions that sell distressed assets, as well as limits on executive compensation for the financial institutions that benefit.

Congress is weighing in heavily on the proposal, as it should, and its legitimate concerns need to be addressed. While we do not see these concerns as insurmountable, they will require some careful crafting of the enabling legislation that may delay it for perhaps a week or so. Ultimately, a more refined and comprehensive package is expected to be drafted and moved expeditiously forward through Congress, with passage expected within weeks."

Global Insight, Perspectives, September 23, 2008

Photo credit: (c) Jim Higgens "The Jefferson Building, The Library of Congress, Washington, D.C." Jefferson's Legacy: A Brief History of the Library of Congress. With thanks.


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