A few days ago, Hank Paulson unveiled plans for a $75 billion "superfund," a reserve formed among big banks. This stoked controversy. Some analysts called the fund a massive bailout. Paulson's predecessor, Alan Greenspan, expressed doubts whether the "benefits exceed the risks." Paulson responded to concerns over a bailout: "The concept is not to buy bad assets," he told the FT. "The concept is for the end investors working with the banks to buy assets that are not credit impaired."
The best piece I've seen explaining this issue is an op-ed in the Wall Street Journal by Peter Wallison. The main point of the fund, Wallison says, is price discovery, and when banks wander into murky financial waters, as they did in advance of the subprime blowup:
With a substantial wad of cash, the contributing banks can help to discover the price at which trading will take place.All of which, Wallison notes, is very much in banks interests. Nor should this be considered a bailout, he says:
Despite the Treasury Department's involvement, this is not a bailout. The Treasury does not have the powerful regulatory authority that made the Fed's involvement in the Long-Term Capital Management hedge fund look like a government-mandated financial rescue. Moreover, Treasury has no funds with which to effect a bailout or to make good on a guarantee.
No comments:
Post a Comment