Tuesday, September 23, 2008

The form of the bailout

The price tag of the $700 billion rescue package currently before Congress is generating much interest regarding the conditions of the bailout. The Times's Paul Krugman is just one of the more vociferous advocates, certainly not the only one, of a realignment of the terms toward public ownership of financial institutions, not purchase of their questionably valued assets.

If recent history in Sweden serves as any guide, it certainly suggests public ownership is a feasible solution, at least for a country whose GDP is only about 2% of U.S. GDP and is thus considerably smaller relative to the entire market.

Traditionally, the Republican Party has been relatively more opposed public ownership of market participants, and certainly in normal times such opposition makes a lot of sense. Given the topsy-turvy state of political views about this, however, it is far from clear who, if anyone, may stand in the way of such a move, if it were ever formally suggested. Per Krugman, apparently Christopher Dodd has introduced a competing bill with such provisions.