Saturday, September 20, 2008


If we are going to pony up to save the capitalists from themselves, then we need to make sure that there is a chance that we can share in the profits. From what I've read, Mark Thoma at Economist's View seems to have a pretty good idea:
Here's a proposal. First, in return for taking toxic assets off of a firms books at a price that is higher than the market rate, the government would get a share of any future profits the firm makes for some time period, say 10% for ten years, something like that. Administratively, it could come as an increased tax rate on profits and, if it helps politically, it could be earmarked for a particular cause. The government pays the firm a fair value for the assets plus an additional amount to help with recapitalization, and in return gets a claim on future profits for a period of time (I would also tie executive compensation directly to profits to help prevent gaming).

For additional recapitalization, I would do something similar. Give the firms a zero or very low interest term loan and, in return, taxpayers get a share of future profits for a period of time, say another 25% (or whatever rate is appropriate, the rates could be set so that, even with expected defaults, taxpayers ought to make a profit). The firm pays back the zero interest loan in full and gives up a share of future profits.

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