Friday, September 26, 2008

BAIL OUT: The Public Deserves a Better Deal

Today's WSJ contains an opinion piece by John Paulson who happens to be #165 on the Forbes 400 wealthiest Americans list. Mr. Paulson is the foremost hedge fund manager that capitalized on the sub-prime market collapse by shorting the troubled stocks with near perfect timing so he knows a thing or two about the situation to say the least. His proposed solution to the imminent bail out situation to me is the best I have heard so far. In it, he proposes:
"There is a better alternative to stabilize the markets: Invest the $700 billion of taxpayer money in senior preferred stock of the troubled financial institutions that pose systemic risks. Let's call this the "Preferred plan." In fact, it is the Fannie Mae and Freddie Mac model -- which the Treasury Department has already endorsed and used in practice. It is also the approach Warren Buffett used for his investment in Goldman Sachs."

He then goes on to elaborate that the current rescue plan is nothing more than a WEALTH TRANSFER from taxpayers to "shareholders and executives of the very institutions that brought on the financial crisis".

I agree that instead of trusting the Treasury department assigning values to the toxic securities that nobody will probably ever buy, his solution effectively puts taxpayers AHEAD of all other shareholders and creditors where they really belong. It is great to see that there are still some cool heads out there rising above the deafening noise of bankers, lobbyists and compromised politicians and telling how it should be. And thanks to WSJ for providing space for such insightful denizens of the increasingly neurotic finance world.

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