zalo

Paulson Finally Doing the Right Thing

I agree with you that the best solution is just to cleanse the bad assets from the banks by giving put free money. But that is not politically viable by any standard. It has never been done in that way in any financial crisis. Pouring in capital is the second best solution, though it punishes investors that bought in the cheap as it dilutes them.
Now, if i where to invest in recapitalizing a bank in the cheap, i will certainly wait to see if the government goes in, and this behaviour will certainly end up in that the government will be the only capitalist pouring in money. True, but from the government point of view, there is no other solution as at this moment there are no private investors out there willing to put in money.