Friday, February 6, 2009

One idea you won't hear from Congress

There are, to be sure, risks of political interference from government involvement in banking, but all of the current proposals for increasing lending require more government involvement. The challenge is to find one that increases lending and does the least harm.

If the government starts as a shareholder in new, healthy banks that eventually end up entirely in the hands of the private sector, the political risks start small and diminish. If instead the government combines open-ended and opaque financial support for troubled banks with promises of tight supervision and punishment for bad behavior, the risks are large and grow over time.

That's Paul Romer, not in Congress. He also (most likely) doesn't get paid by the big banks.

(HT to Tyler).

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