Devil is in the Details of Paulson's Rescue Plan

5 Pages Posted: 24 Sep 2008

See all articles by Hrishikesh D. Vinod

Hrishikesh D. Vinod

Fordham University - Department of Economics

Date Written: September 22, 2008

Abstract

US treasury secretary Mr. Paulson has proposed a bold plan to rescue the world financial system, which involves a taxpayer bailout of over $700 Billion. The Wall Street investment banks are disappearing and unbelievable changes occurring are somewhat similar to the great depression. This short paper suggests four important changes to specific sections of the Paulson proposal intended to provide better checks and balances. (1) Limits on compensation, (2) Caps on purchase price of assets, (3) Preventing abuses by service providers and (4) Preventing conflicts of interest. The amendments (3) and (4) are not much mentioned in the financial press, but are crucial. These safeguards allow a solution closer to what Sweden did in the 1992 Banking crisis, with a near zero cost to the taxpayer. I identify four classes of 'winners' who benefited from the billions lost by investors in Banks and brokerages in recent weeks which includes bonus-earning employees and sub-prime borrowers who enjoyed the pleasures of home-ownership for a while. Clearly any winners should not be allowed to share the $700B bailout funds.

Keywords: Compensation Limits, Asset Price Ceiling, Conflict of Interest

JEL Classification: E50, E60

Suggested Citation

Vinod, Hrishikesh D., Devil is in the Details of Paulson's Rescue Plan (September 22, 2008). Available at SSRN: https://ssrn.com/abstract=1272286 or http://dx.doi.org/10.2139/ssrn.1272286

Hrishikesh D. Vinod (Contact Author)

Fordham University - Department of Economics ( email )

Dealy Hall
Bronx, NY 10458
United States
718-817-4065 (Phone)
718-817-3518 (Fax)

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