Chronicles Of Depression 2.0: #354: Zingales
These are the first things I’ve read that make actual sense in proposing a solution to this financial mess.
My Views on the Credit Crisis — links to his writings
These two are the key ones, both are PDFs (at the time of this posting):
The United States (and possibly the world) is facing the biggest financial crisis since the Great Depression. There is a strong quest for the government to intervene to rescue us, but how? Thus far, the Treasury seems to have been following the advice of Wall Street, which consists in throwing public money at the problems. However, the cost is quickly escalating. If we do not stop, we will leave an unbearable burden of debt to our children.
Time has come for the Treasury secretary to listen to some economists. By understanding the causes of the current crisis, we can help solve it without relying on public money. Thus, I feel it is my duty as an economist to provide an alternative: a market-based solution, which does not waste public money and uses the force of the government only to speed up the restructuring. It may not be perfect, but it is a viable avenue that should be explored before acquiescing to the perceived inevitability of Paulson’s proposals.
Countless kibitzers told Hank Paulson that there was a better way to rescue the financial system than to buy up bad mortgage paper. Many believed the government should buy preferred stock, the way Warren Buffett is doing. Here’s a third way to end the crisis. It’s simple and it doesn’t cost taxpayers a dime. My proposal is to streamline bankruptcy in a way that would allow banks to restructure their debt and restart lending. This special Chapter 11 would be temporary, lasting only one year.
His plans really are brilliant. They keep us innocent ones off the battlefield and require only those in the middle of this entire mess to deal with it amongst themselves — without raiding our wallets.
Paulson better wake up to what Zingales has written.
And do it.
It’s the best way out.