Bernanke and Paulson: Butting Heads?

Interesting tidbit in a Paul Krugman column in the Monday NY Times. He lauds U.K. Prime Minister Gordon Brown's approach to bailing out U.K. banks, and says Brown is the real agenda-setter here with his recapitalization program, as opposed to the mineral bath Treasury Secretary proposed to give domestic financial services via his TARP plan. And then comes this:

This sort of temporary part-nationalization, which is often referred to as an “equity injection,” is the crisis solution advocated by many economists — and sources told The Times that it was also the solution privately favored by Ben Bernanke, the Federal Reserve chairman.

But when Henry Paulson, the U.S. Treasury secretary, announced his plan for a $700 billion financial bailout, he rejected this obvious path, saying, “That’s what you do when you have failure.” [Emphasis mine]

Now, this could be Krugman giving fellow economist Bernanke cover, or it could be Bernanke's friends spinning things after the TARP auction program came under heavy fire as being slow, impractical, etc. Nevertheless, it seems there is newly a split between Paulson and Bernanke on the bailout.

More here.

Comments

[GKM:]

Well then Hanky Panky, you let the banks fail and then you recapitalize them. You don't throw money at them to shore up your own investment without diluting it. How's your $700 million stake in GS looking right now Mr. Secretary of the Treasury? Of course, I'm sure you'd sacrifice that $700 million to save the people $700 billion right? How about a portion of it? Ok, how about none of it? It's settled then.

2008 Oct 13 09:16 AM

[pochovilla:]

Paulson knows he has a lifeboat in January. Bernanke thinks he will still be on the ship.

2008 Oct 13 09:58 AM

[Urbane Gori...:]

The chatter is that Bernanke is on the outs with McCain and Obama... jegan

2008 Oct 14 07:41 PM