Legitimate bank bailout
Further to my post on 5th October, governments in Europe and the USA have come to the same conclusion I did then, that the Paulson plan did not confer sufficient legitimacy when taxpayers’ money is used to support a non-functioning banking system. Only equity stakes, punishing previous shareholders by dilution, combine the enlightened social interests enabled by mixed economies with the helpful disciplines of free-market economies. It was errors in establishing this balance that got us into the problem (errors in monetary policy, bank supervision and the conduct of shareholder responsibilities) and it is as well to get the balance right when we come to sort it out. That applies to immediate actions to prevent a melt-down and longer-term actions to prevent repetition of the errors.
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