Monday, September 22, 2008

Thank God for Dodd

Christopher Dodd's proposal back to Treasury sounds much more reassuring.

The key point: The Government gets some stock for saving a bank's ass.

I think that's key. The moral hazard created by just socializing the banks' losses has to be at least as bad - down the road - as the potential Depression would be today. By getting a share of the company in return, it's not just that there is now some potential for taxpayers to recoup their losses: it's that banks have to give up some autonomy if they want to be rescued, and we discourage people from taking advantage of this windfall in bad faith.

At least this way, there is some consequence for making these bad bets. There absolutely has to be, or we'll all be even sorrier tomorrow.

UPDATE: Here is Dodd's plan. I think this is the correct medicine. Let's see if Bush and the Republicans blink, now that something common-sensical is out on the table. Congrats to congressional Democrats for pulling this together so quickly.

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