President Bush’s speech tonight urged Americans to side with the Bush-Bernanke-Paulson worldview that a bailout is the only option. Is it the only option?
Luigi Zingales believes Henry Paulson’s decision to bail out Wall Street is a mistake. Most economists agree that the government won’t get a “deal” when negotiating the price of risky assets.
“In a negotiation between a government official and banker with a bonus at risk, who will have more clout in determining the price? The Paulson RTC will buy toxic assets at inflated prices thereby creating a charitable institution that provides welfare to the rich–at the taxpayers expense.”
Zingales continues: “Do we want to live in a system where profits are private, but losses are socialized?”