Tuesday, February 17, 2009

Rosenfield: Government Should Save Banks, Not Their Shareholders

Rosenfield has an excellent article in Forbes Magazine (HT Freakonomics) denouncing the government for being "oddly committed to sending vast amounts of taxpayer money to the investors and executives of the nation's largest banks--in spite of the fact that it has no duty to do so and that doing so rewards the very institutions and people who have taken our economy to the brink." His conclusion below is extremely important, and I can only wonder why is it that such a simple notion has been until now entirely disregarded by people in power:
The present practice of subsidizing shareholders and debt holders of large insolvent bank holding companies is unprecedented, improper and unwise. It is time to take strong capitalist action--and that requires wiping out the existing owners of the insolvent banks and giving the system much needed new equity capital, which, at this time, can come only from the government.

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