Paul Krugman wins Nobel Prize for Economics
... and he's probably very smart so what does he have to say about a solution to the financial crisis.
Mr. Krugman thinks that British Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling did the right thing by injecting capital into banks in return for a share of ownership.
"But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.
This sort of temporary part-nationalization, which is often referred to as an “equity injection,” is the crisis solution advocated by many economists — and sources told The Times that it was also the solution privately favored by Ben Bernanke, the Federal Reserve chairman.
But when Henry Paulson, the U.S. Treasury secretary, announced his plan for a $700 billion financial bailout, he rejected this obvious path, saying, “That’s what you do when you have failure.” Instead, he called for government purchases of toxic mortgage-backed securities, based on the theory that ... actually, it never was clear what his theory was.
Meanwhile, the British government went straight to the heart of the problem — and moved to address it with stunning speed."
Read, Gordon Does Good.