Further to my post below, here is Luis Zingales on the liquidity versus solvency flaws in the Paulson plan, and “a smart friend” of Greg Mankiw retorting. According to the latter, it is “academic” economists who oppose the plan. Meow.
As John McCain makes his way to Washington to save the nation, a deal seems to be about to be struck on the $700bn bail-out package proposed by Hank Paulson, the Treasury secretary.
Meanwhile, a consensus is forming elsewhere that Mr Paulson and Ben Bernanke, chairman of the Federal Reserve, are taking aim at the wrong side of the balance sheet of the US banking system.
George Soros argues in the FT this morning, as Martin Wolf did the previous day, that the $700bn would be more efficiently spent on recapitalising US banks and then letting them get on with their business, rather than attempting to set a new price for the mortgage securities at the heart of the crisis.
That would be more in tune with, for example, the approach taken by Scandinavian countries during their own banking crisis in the 1990s. Read more