Details are scarce on the big buyout; but as a few dribble out, I’m getting uneasy.
Here’s the source of my uneasiness: the underlying premise behind the buyout seems, still, to be that this is mainly a liquidity problem. So if the government stands ready to buy securities at “fair value”, all will be well.
But it’s by no means clear that this is right. On one side, the government could all too easily end up paying more than the securities are worth — and if there isn’t some kind of mechanism for capturing windfalls, this could turn into a bailout of the stockholders at taxpayer expense.
On the other side, what if large parts of the financial sector are still underwater even if the assets are sold at “fair value”? Is there a provision for recapitalizing firms so they can keep on functioning?
Maybe the plan will look fine once we see the details. But while Paulson and Bernanke are a lot better than the people we might have had in there (thank you, Harriet Meiers!), their track record to date does not lead to the automatic conclusion that they know what they’re doing.
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