My Two Cents

A new rescue plan

Chris Farrell Sep 30, 2008

The Paulson plan is dead. I don’t think it is worth trying to revive. The House Republican “alternative” was always a joke.

But the case for a systemic solution to the credit crunch is still needed. The global economic risks are too great. Congress desperately needs to act to at least restore something of its already bottom-basement reputation.

The basic idea comes from Jamie Galbraith, political economist at the University of Texas. Put half a trillion dollars into the FDIC. Wall Street doesn’t exist anymore anyway. The agency has done a terrific job throughout the crisis. The takeovers of WaMU and Wachovia were smartly done, for example. It gives politicians cover because they aren’t bailing out Wall Street, they’re saving your deposits and savings. Throughout the credit crunch the FDIC has been concerned with homeowners and willing to pressure banks to slow down on their foreclosures. It’s also a solution easy to grasp.

I’m not sure why Treasury and the Fed didn’t embrace this solution earlier. But the risk of inaction is too great.

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