Does anyone else get the feeling that the opinion of the great and the good is turning away from buying troubled assets as in the TARP model and injecting capital directly into banks, as (I guess) Treasury has the power to do under the new Act? Vernon Smith makes a pretty good case for it. Plus I hear it talked up on CNBC and that's what the Brits are doing.
It does make some sense, especially if you consider the difficulties of auctions, the design and execution of which are possibly beyond even the genius of a 35-year old rocket scientist honorable mention in the Dr. Evil look alike contest.
Eric Posner says it's clear Treasury is going to do this. Eric sounds even more upset than I am, calling this an outright government takeover of the financial system. Maybe it is. I'm not sure. Even Larry Kudlow is calling for capital injections now. A lot depends on the control features attached to the injections. Will the US get voting stock? Senior debt? what? I think I am more in line with the WSJ's view on this than Professor Posner's.
I would feel better about these steps if we (but not I) were not about to elect a possibly (but who really knows?) left wing president, who might push to keep the emergency powers over the financial system. I just don't see any way around recapitalizing the financial system, and if the government doesn't do it, who is going to? Left to the private sector, it would take years, with a lot of very painful dislocation in the meantime.
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