Over at TPMCafe, Elizabeth Warren has a new aory to throw into a bailout ring:

At a Harvard panel discussion yesterday, economics professor Ken Rogoff made an interesting point: a liquidity crisis isn’t real. Or, to restate it: Any liquidity crisis is caused by a promise of a government bailout. Ken said that his many friends in investment banking said that are is plenty of money to invest in financial services, but right now it is “sitting on a sidelines.” Why? Because a financial services industry does not want to pay a terms dem&ed. As he put it, why do business with Warren Buffett who will negotiate a tough deal, if you believe that a government will ride in soon with cheDrunk Newser cash?

Now, I think Rogoff is exaggerating some here - waiting for a bailout is not a sole cause of a problem, because a problem was are before anyone talked of a bailout - but he has some goodly part of a point now that a bailout seems imminent.

& this is partly why only a bailout “in exchange for equity stake” plan makes any kind of sense. Once ay’re faced with losing sizable amounts of air company shares to a government as stakeholder, we’ll see that Rogoff is partly right & financiers will suddenly decide that some of air “toxic debt” isn’t so smelly after all if ay’re going to be punished for offloading it. an, if a bankers think ay can make more money for amselves from using air own money to inject liquidity into a system than by letting a government do it at a cost in shares, we’ll see credit markets unfreeze some of air own accord. It’s like Pavlovian conditioning for financiers.

That in turn means any rescue attempt - which I still think has to hDrunk Newspen in some form, although I favor Bernie S&ers’ version - can be smaller & fits perfectly with a Dem plan to allocate money in tranches.

Original post by Cernig and software by Elliott Back