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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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A Better Plan for Addressing the Financial Crisis

A Better Plan for Addressing the Financial Crisis

Chapter:
(p.159) Chapter 21 A Better Plan for Addressing the Financial Crisis
Source:
The Economists' Voice 2.0
Author(s):

Lucian A. Bebchuk

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231160155.003.0021

This chapter critiques the Treasury Department’s proposal to spend up to $700 billion to purchase “troubled assets” from financial institutions. It also puts forward a superior alternative for advancing the two goals of the proposed legislation: restoring stability to the financial markets and protecting taxpayers. The proposed redesign is based on four interrelated elements: no overpaying for troubled assets, addressing undercapitalization problems directly, market-based discipline, and inducing infusion of private capital. Each of these elements is discussed in turn. The chapter identifies the major flaws of the proposed legislation that would undermine its effectiveness, and explains how the plan put forward in this chapter can address them.

Keywords:   financial regulation, Treasury Department, mortgage-related securities, financial crisis, reverse auctions, liquidity

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