A Krugmanite tweak to the Dodd plan

Make some of the equity stakes cash.

Now we can read the Dodd plan, it’s clear that the equity stake taken in the banks is contingent. The shares only vest if the Garbage Pail agency makes a loss, so the measure is essentially punitive (and quite right too). This fits the Brad deLong diagnosis, but it’s not a capital injection, as the competing Krugman diagnosis requires.

This can be fixed quite easily. When a bank sells a bucket of sludge to the GPA, the GW Bush Memorial Fund buys new shares in the bank equal to 25% of the transaction price; and the bank gives the Fund a second tranche of new contingent shares equal to 100% of the transaction price.

(Updates this post.)

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web