Hempton's point is well taken. As he comments to one of his readers, "If I set up a new bank and borrow with brokered deposits I can lever 12 times non-recourse. If I win I keep the profit. If I lose the FDIC pays the losses. ... Geithner lends the money to the special purpose fund. Not against the pool of purchased assets - but with private capital pitched in. Sounds like banking to me." So Hempton objects to what he sees as Krugman's inconsistency.But Hempton's analogy isn't quite right. Krugman wants big banks nationalized, giving taxpayers the equity upside. The Geithner plan is at best an inefficient way of bolstering bank capital because some of the taxpayer funds go not to bank capital, but to bank shareholders and hedge funds.
Monday, March 23, 2009
Geithner's part plan
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