by Calculated Risk on 9/26/2008 08:31:00 AM

From the Washington Post: Away from Wall Street, Economists Question Basis of Paulson's Plan. A couple of quotes:

"There is a kind of suggestion in the Paulson proposal that if only we provide enough money to financial markets, this problem will disappear," said Joseph Stiglitz, a Nobel Prize-winning economist. "But that does nothing to address the fundamental problem of bleeding foreclosures and the holes in the balance sheets of banks."
...
"The root of the issue is recapitalizing banks," said Glenn Hubbard, dean of Columbia Business School and a former chairman of President Bush's Council of Economic Advisers. "That could be done more efficiently through the government injection of preferred equity. Then the market could figure out the prices of the assets."

Initially many of us expected a Depression era Reconstruction Finance Corporation (RFC) type preferred stock investment to recapitalize the banks. Instead, the Paulson Plan intended to recapitalize the banks by paying a premium for troubled assets. The compromise bill discussed yesterday was a step in the right direction because of the equity sharing provision (although there was no details).

Apparently there will be meetings again today starting at 11:30AM ET. (scroll down to see posts on JPM / WaMu)