Vox Rationalis

Bailout Talks Lose Sight of the Cost Question

I like WPO columnist Pearlstein's idea - rather than the government taking a position in hundreds of banks et al, set up a new corporation in which the entities take an ownership interest in exchange for their funky securities/mortgages. The Government puts up a fixed sum ($100B, say) and after that, the owners (the banks) take the losses. If the enterprise is eventually profitable, we the people make money, the banks make money, everybody's happy.

In the short term, the bad assets are moved off the companies, replaced by equity in the new company. The immediate pressure comes off, and the market determines the actual values over time. I might not be describing this quite right, but the idea's a nice twist.

Of course, if they'd just rescinded the mark-to-market requirement early this year, we might not have reached this point...