Q&A With Allan H. Meltzer: Geithner Plan 'Another Bailout'

Market Pulse ^ | April 3, 2009 | Robert Stowe England

[WashingtonSource]

ENGLAND: What do you think of the Public-Private Investment Program (PPIP) recently announced by Treasury Secretary Timothy Geithner?

MELTZER: This is another bailout because most of the money is coming from the government and not the private sector. So, while it’s called a public-private partnership, the costs of the partnership are heavily skewed to the taxpayers.

ENGLAND: Yes.

MELTZER: So, let’s go to the fundamentals first. The system that we have had cannot survive for very much longer if the bankers make the profits and the public, the taxpayers, take the losses. That’s a system that the Obama Administration, and the [former Treasury Secretary Hank] Paulson [and the Bush] Administration and previous administrations have developed.

ENGLAND: What do you think should be done in the alternative?

MELTZER: I proposed [to them] months ago when the Paulson Treasury was still there that they have a system which says to banks that need financing: You raise half the capital in the marketplace and we’ll give you concessional loans for the other half. If you can’t raise the [first] half [of needed capital] in the capital markets, then you’re going to be subject to the law called FDICIA [the Federal Deposit Insurance Corporation Improvement Act of 1991], which means we can take you over, wipe out the management, take over the stockholders and sell the parts of the bank that are still viable. That’s what I think they should do. Where they can’t do that or think they can’t do that, then they should use the bankruptcy law as an incentive to raise the private capital.

http://robertstoweengland.com/marketpulse.htm

[WashingtonSource]

Another economist criticizes the Geithner Plan.

[Maine Mariner]

In terms of monetary economics Allan Meltzer is considered the heir or successor to Milton Friedman. He (Meltzer) is an excellent economist

[WashingtonSource]

I agree with your assessment of Meltzer. BTW, my favorite Meltzer quote from this interview is this one:

The golden rule applied in this case is that he who has the gold, rules.