How should the financial markets be recapitalized?
Here is an idea
Here is what I like about the proposal:
1. Public money is treated with the same terms as private money.
2. The chance of government fraud is reduced greatly, by virtue of the way investment is controlled by the private sector.
3. The chance of corporate fraud is reduced greatly, by virtue of having to attract private money.
4. I think this plan can appeal to conservatives, due to its market-based approach, and to liberals, due to its fiscal responsibility with regard to public money.
Here is what I don't like about the proposal:
Due to a bipartisan aversion to trust-busting, some corporations have been allowed to grow so large that their collapse would inflict a dangerous blow to our financial health. There may be some cases where a business cannot be allowed to fail, and yet is an unattractive investment.
What should be done then?
I say we follow Gordon Brown's lead in those cases and get an equity stake in such companies.
I am not an economist, but there are certain principles I can understand clearly. One is that public money should not be wasted, since it necessitates higher taxes. Another is that corporations are forbidden by law to be anything other than selfish, so let's use their selfishness on our own behalf.
I suppose another idea might be this:
Suppose the US government issued bonds to fund these bailouts, similar to the war bonds which funded WWII? Buying such a bond would be a voluntary act, and Wall Street could have a very small speculator-deterring tax on transactions similar to the UK, to pay for the interest.