Advancing a Free Society

New Book on How to End Government Bailouts

Thursday, February 11, 2010

America is sick of bailouts. As President Obama called out in the State of the Union “we all hated the bank bailout. I hated it. I hated it. You hated it.” But the bailout mentality continues, and hate alone will not make it go away. So how can we end bailouts?

“Make failure tolerable” is George Shultz’s answer, as he explains in the lead essay of a new book in which a dozen policy makers, economists, and lawyers delve into the problem and come up with answers. The book is Ending Government Bailouts as We Know Them and is edited by Ken Scott, George Shultz and me.

If you look through the book, you’ll find

Paul Volcker explaining why his plan to further limit banks will reduce bailouts
Nick Brady reminding us that it wasn’t this way when he was on Wall Street or in the Treasury
Kimberly Summe telling the story of the Lehman Brothers bankruptcy (she was a lawyer there)
John Taylor confessing that systemic risk is not a well-defined concept after all
Darrell Duffie showing how contingent convertible debt is part of the answer
Richard Herring developing wind-down plans for big global financial firms
Joe Grundfest comparing such plans with pre nuptial agreements and Tiger Woods travails
Bill Kroener reviewing the pros and cons of an expanded FDIC operation (he was at the FDIC)
Tom Hoenig (with Chuck Morris and Ken Spong) laying out the rules-based Kansas City plan
Tom Jackson designing a disruption-free Chapter 11F bankruptcy plan for financial firms
Ken Scott evaluating whether the proposals work in theory and in practice

You will also find Gary Stern, Peter Wallison, Monika Piazzesi, David Skeel, Ernie Patrikis, Bob Hall and many others critiquing . With the Obama administration’s bringing Volcker’s ideas into the spotlight and Congressional Republicans finding new support for their bankruptcy ideas, it looks like the book is as timely as it could be.