Tuesday, October 14, 2008

Economists' Views on the Recapitalization

The Wall Street Journal collected some opinions of academic economists on the recapitalization plan. One item of dispute seems to be whether it is better for the government to claim preferred or common shares. The former means more security for taxpayers and no voting rights. But it also could induce more risk taking on the part of banks close to the brink. Preferred shareholders get paid first, so for the common shareholders who are close to being wiped out more risk may be better.

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