Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option. Right now, players throughout the system are refusing to lend and hoarding cash — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.
Doing nothing isn’t a serious option
The theme of his piece is that it is time for the adults to take over. And that person isn't Paulson. And it isn't McCain:
Senator John McCain, is apparently playing spoiler. Earlier this week, while refusing to say whether he supported the Paulson plan, he claimed not to have had a chance to read it; the plan is all of three pages long. Then he inserted himself into the delicate negotiations over the Congressional plan, insisting on a White House meeting at which he reportedly said little — but during which consensus collapsed.
Krugman says the "agreement on principles" is much better than the Paulson plan for a number of reasons but most importantly the taxpayers get an equity stake:
The odds are ... that the U.S. government will end up having to do what governments always do in financial crises: use taxpayers’ money to pump capital into the financial system. ... What taxpayers should get is what people who provide capital are entitled to: a share in ownership. And that’s what the equity sharing is about.
The devil is in the details but here is the crucial point: adults like Krugman believe something must be done.
Update. More Adults Weigh In:
New York Times Editorial Board says need to include mortgage relief in bankruptcy court for homeowners.
Robert Reich agrees and also suggest other ways to cuff Wall Street executives around.