On Sep 30, 2008, at 4:04 PM, Marvin Gandall wrote:
> True, but isn't it a matter of how the money is spent and on whom?
> Only
> seven of the cases in the IMF study centrally involved the purchase of
> assets rather than recapitalization in exchange for an equity stake
> or a
> takeover.
Buying assets is inferior to injecting equity into institutions, no doubt about that. That was a major flaw in the Paulson plan. Using the FDIC might be a backdoor way of doing equity infusions. But it's going to take real money, which some people don't want to admit. And if you don't spend the money, you pay in the form of a deeper recession.
> And the Paulson plan goes well beyond a rescue of shaky or insolvent
> banks.
> It also proposes to pay above market prices for the next to worthless
> securities
Bernanke's point about the mark-to-market vs. the hold-to-maturity value of these securities is worth taking seriously. The problem is that in a panic, these securities are seen as worthless, but they might not be over the longer term. The history of systemic banking crisis involves a lot of asset recovery.
Doug