Henry Paulson's New Phase recue plan
the Treasury Department, signaling a new phase in its $700 billion financial-rescue plan, is considering requiring that firms seeking future government money raise private capital in order to qualify for public assistance, according to people familiar with the matter....
"We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments," Treasury Secretary Henry Paulson said in a broad speech on the Troubled Asset Relief Program, known as TARP, the global credit crunch and the government's recent steps to address the financial meltdown.
Here is Prof Mankiw's October 08, 2008, How to Recapitalize the Financial System:
Here is an idea that might deal with these problems: The government can stand ready to be a silent partner to future Warren Buffetts.First come first serve like a soup kitchen. I am not really confident comments on this area but I think it is a sensible idea Mr. Paulson changed the recues plan more focuses on ordinary people and encourage private investment instead of zombie firms. Government hold your hands as silence partner for your investment it is not bad idea as environment like this.
It could work as follows. Whenever any financial institution attracts new private capital in an arms-length transaction, it can access an equal amount of public capital. The taxpayer would get the same terms as the private investor. The only difference is that government’s shares would be nonvoting until the government sold the shares at a later date.
This plan would solve the three problems. The private sector rather than the government would weed out the zombie firms. The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control.
Why would an undercapitalized financial firm take advantage of this offer? Because it would need to raise only half as much capital from private sources, that financing should be easier to come by. With Warren Buffetts in scarce supply, the government can in effect replicate them, by pigging backing on what they do.
