The question for the moment is, How can we get capital back into the financial system? Ideally, it would be great if more Warren Buffetts would step up to the plate and recapitalize financial firms with private money. Unfortunately, that might not happen fast enough to prevent a major economic downturn.
And the solution :
The government can stand ready to be a silent partner to future Warren Buffetts. Here's how it works - Whenever any financial institution attracts new private capital in an arms-length transaction, it can access an equal amount of public capital. The taxpayer would get the same terms as the private investor. The only difference is that government’s shares would be nonvoting until the government sold the shares at a later date.
I like the idea very much because it helps all 3 parties : the beleangured banks hungry for capital, private firms (like that of Warren Buffettt) seeking good investments, and safe use of taxpayers money.
Furthermore solves three problems :
The private sector rather than the government would weed out the zombie firms. The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control.
Towards the end, Professor Mankiw also stresses Alan Greenspan's point that immigration be increased which will lead to higher demand for housing. In turn, houses will get filled up, raising the lowly house prices. Consequently subprime obligations would rise, reducing the bailout needed and providing higher skilled workers to the US .
But I don't like this last idea much because America will simply rely on other countries for their skilled workers, and shift the burden of the housing mess on these new immigrants.
What are your thoughts on the same. Keep the comments rolling in........
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