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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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PRINTED FROM COLUMBIA SCHOLARSHIP ONLINE (www.columbia.universitypressscholarship.com). (c) Copyright University of Minnesota Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CUPSO for personal use.date: 16 May 2022

Why Paulson Is Wrong

Why Paulson Is Wrong

(p.138) Chapter 17 Why Paulson Is Wrong
The Economists' Voice 2.0

Luigi Zingales

Columbia University Press

This chapter first addresses the question of why Chapter 11 was not used to solve the financial sector’s problems. The obvious answer is that there was no time; Chapter 11 procedures are generally long and complex, and the crisis reached a point where time was of the essence. If left to the negotiations of the parties involved, this process would take months. The chapter then considers Treasury Secretary Paulson’s proposal to create a sort of Resolution Trust Corporation (RTC) that will buy out (with taxpayers’ money) the distressed assets of the financial sector. It argues that 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. If the RTC subsidy is large enough, it will succeed in stopping the crisis. However, it will cost billions of dollars in taxpayer money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses.

Keywords:   Chapter 11, financial crisis, financial regulation, Treasury Secretary Henry Paulson, Resolution Trust Corporation

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