Luigi Zingales: Why Paulson Is Wrong

Last week, my colleagues Doug Diamond and Anil Kashyap guest-blogged on the financial crisis.

The response to their piece was amazing. At one point, their blog post was the second-most-emailed article of the day for the entire New York Times, even though it wasn’t even in the printed version of the paper — just on our blog.

I can’t remember ever seeing a blog post make the most-emailed list.

After that kind of reaction, how could I pass up the opportunity to publicize the ideas of Luigi Zingales, another one of my colleagues, whose provocative piece is entitled “Why Paulson Is Wrong.”

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  1. Jason Ruspini says:

    Recall two central failings of socialism: lack of incentives and inferiority of centralized decision-making. IF this bill must go through in a way that leaves the shareholders intact, we need real accountability and transparency at the government level — which were completely missing from the first draft. As many have by now pointed-out, lack of transparency is partly the source of the problem in the first place. We need to know what the trust is buying and selling, and preferably from whom. The Treasury then must actively elicit bids for the assets on its books, which must be marked and made public at least once per quarter. A public book should also attract more bids and discover better prices than a private one. Hold-to-maturity pricing subverts all of this.

    The Treasury must be subject to review by Congress in such a way that there is an incentive to not simply take in assets at inflated prices. If real TARP losses exceed certain levels, Treasury and other relevant officers should face penalties at the discretion of Congress, including removal from office.

    Basically, there needs to be a structure in place to decrease the chances of taxpayers overpaying for assets.

    Slathering new redistributions onto the bill does not address its problems.

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  2. Mark E. says:

    @2: “One could also say that the taxpayers who have taken advantage of this easy credit deserve to pay back what they borrowed and learn to save more and not live beyond their means … Nobody forced people to buy McMansions in Exurban areas, 12 mpg SUV’s and granite counter tops with built-in plasma TVs.”

    Sounds fantastic. Since I didn’t make any of these poor choices OR attempt to cash in on them as a creditor, maybe I can opt out of the upcoming tax burden and then be the first in line to invest in the property that floods the market during the fire sale afterwards? We’ll see what happens, but let’s just say I’d short-sell the stock of something so beautifully capitalistic occurring in the MYOPIC and OPPORTUNISTIC economy that these “free market” activists have created for us.

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  3. Brian says:

    “I hope we shall… crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”

    –Thomas Jefferson to George Logan, 1816.

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  4. Larry Elliott says:

    $700B bailout = green light and blank cheque for Klepto-Capitalism.

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  5. Let Them Eat Cake says:

    People cheat. It is basic human nature. And the more cheaters get away with it, the more they cheat, the more others are tempted to cheat alongside them. In the absence of regulation in the capital markets, cheating becomes institutionalized, which we have seen with the hedge funds on Wall Street. Never before have they had greater access to real-time information with less transparency about what they do with it. Programmed trading induces volume, more fees, greater volatility and gives tremendous advantage to the largest pools of capital. Naked shorting, painting the tape and a panoply of market manipulations increase unchecked. The game is 100% fixed. On top of that they have been getting tax breaks to maximize the take. With their ill gotten gains they buy more politicians to stay out of their way while they continue to steal. Essentially they have been free to prey on the common investor as long as the profits are concentrated into the hands of the ruling elite. And now they sit in a pile of their own filth, a by-product of illegitimate lending and trading in convoluted CDOs, begging us to save them from their losses. Meanwhile they blame the lower classes for biting off more than they could chew. We the people, the ones they fleeced in the first place.

    This shall not stand.

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