There seems to be a rare harmonic convergence on the op-ed page of the New York Times today, both Paul Krugman and William Kristol–the alpha and omega of the Times’ columnist corps–are opposed to the Bush Administration gargantuan Wall Street bailout.
Krugman obviously knows a lot more about economics than Kristol. Indeed, Krugman has been written early and often about the disastrous potential of the housing bubble. And I would trust him here–the taxpayers’ stake in this bailout is best protected by the government taking an equity stake in the affected firms:
And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.
That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)
Kristol raises an interesting political point: Does Barack Obama have the courage to oppose what seems like a bad deal? John McCain–flailing about for an economic policy–has seemed bolder, or perhaps just noisier, on this front. Obama–constantly attempting to prove his legitimacy–has been steadier, but quieter:
He probably won’t want to run the risk of actually opposing [the bailout], or even of raising big questions and causing significant delay — lest he be attacked for risking the possible meltdown of the global financial system.
Obama has a big speech scheduled for noon today on this subject. It will be interesting to see how far he goes in opposition to the Bush Administration plan. What Krugman is proposing is bold, but not unprecedented, and after the Wall Street greed-fest of the past 25 years, it seems entirely appropriate: it is time that the taxpayers, not the financiers, reap any benefits accruing from a public bailout of the system…since the taxpayers are the people now assuming the risk.