The fundamental fairness of the American society and especially the American economoy has taken a heck of beating in recent years. I agree with Paul Krugman’s take on the latest Wall Street bail-out scheme.
Calculated Risk looks at the latest plan floated by the Treasury — to make low-interest, non-recourse loans to private investors who buy bad assets — and immediately gets it: this is a plan to drive up the prices of toxic assets by creating a lot of moral hazard.
By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they’ve tried to recycle the same bad idea.
Indeed. Every plan we’ve heard from Treasury amounts to the same thing — an attempt to socialize the losses while privatizing the gains.
Fairness does not mean that no sacrifices need me made. Sacrifices are being made right now and they will continue to be made. Instead, fairness demands that the sacrifices be shared equitably. This plan fails that simple test.