Monday, July 28, 2014

Too many companies were Bailed out with taxpayer money

Many of the things that were done were in fact appropriate. We learned the lessons of the Great Depression and we used monetary policy, we used fiscal stimulus, and even some backstopping of the financial sector was ultimately probably necessary. If Wall Street would have actually collapsed, the damage to Main Street would have been even more severe.

However, I think we still bailed out too many institutions, and we kept too many zombie banks alive. We could have taken the unsecured credit of some of these banks—their debts—and converted them into equity. That's what you do in bankruptcy. You take a firm that's in Chapter 11, and you take some of their debts and you convert them into equity.

If we'd done that, some of the creditors of the banks would have become equity holders, and that would have recapitalized the banks without using public money. We would not have had to bailout the creditors and the shareholders of the banks. I would have done that as part of the solution in order to limit the amount of public money and taxpayer money used for bailouts.