(2008-03-24) Krugman Bank Regulation

Paul Krugman on the Sub-Prime-driven mess (esp the Bear-Stearns Bail-Out). Last week Robert Rubin, the former Treasury Secretary, declared that Mr. Barney Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued (Bail-Out) like banks, then they need to be regulated like banks.

Here's the argument in favor of the Bail-Out, framed in terms of preventing a credit-market-run.

Tom Evslin thinks the answer was to not give the Bail-Out. Yes, other investment banks might then have failed as well. Stock prices probably would have plummeted in the short term. On the other hand, investment banks might have become more creative in working things out with the homeowners whose mortgages are underwater. Now the banks can take a tough line with the borrowers knowing that the Federal Reserve is behind them. I Commented to ask about the credit-run risk.

Dave Winer thinks the Bail-Out was needed to avoid a Bank Run.

Context: 2008-03-13-FedMortgageRescue