Ben Bernanke Explains It All

Like many people, I assumed that the Treasury Department, as part of its the bailout plan for the financial industry, would buy up bad debt at less than market value. I wondered how firms would make up for the hole that would leave in their balance sheets. In testimony before the Congress on Tuesday Ben Bernanke explained how they would make up for that hole. Apparently the plan all along has been to buy the bad debt at above market value. As Bernanke explained this would establish new prices that the firms could use to value their holdings.

I originally called this plan welfare, but I was wrong. Welfare is intended to tide you over in hard times until you can get back on your feet. What this plan would do would be to completely shield the financial wizards that created this mess from the pain of their terrible decisions. It would have the effect of socializing the losses but not the profits. I find the notion criminal. It is more imperative than ever than we get something for all this money we're about to spend. If we are going to delay the infrastructure and education investments we desperately need then we should at least get an equity stake in the participating firms and some rational regulation of the industry. Fortunately, Congress seems to be as repulsed as I am.