It is in the interest o all the loans are repaid

A ter the transient rond o the Republicans in the House o representati es against the Paulson plan, incent Reinhart gi es the pulse o Republican thought in these troubled times. Research today at the American Enterprise Institute, one o the "think tanks" conser ati es whose in luence was paramount in the Bush, he was the ormer Director o the di ision o Monetary A airs o the ederal Reser e.

The plan Paulson is a tailored response to the inancial crisis

It is in the direction where the Go ernment acknowledges inally that the substance o the problem is the sol ency o the banks, not liquidity. Buy the assets o banks may not be the way to the more e ecti e action, but at least this puts a stop to the ad hoc strategy, where the Go ernment played the ire ighter company by company. I he had continued on this path and began to inject capital, it would ha e been much more costly or public inances because it would ine itably ha e assisted more than necessary banks.

How you analyze the reaction o Parliament

Politicians don't like to dictate their conduct. They don't like that person will be punished while American households are not protected. This plan should be presented as a way to preser e assets and protect credit markets. This is not to sa e Wall Street keeps America's economy hostage!

Should we renegotiate real estate debt o households

It is a question o airness. And then, otherwise, there will be an e en more pronounced decline in the wealth o the country, which will continue to slow an already weak economy. It is in the interest o all the loans are repaid.

Should the State enter the capital o the companies which will take o er the bad assets

It depends on. It must be to realize that we are in a situation where in ormation is asymmetrical. I it buys the Bank by bank assets, their teams know still more that the Go ernment will put in place. In this case, I think that "warrants" used to correct the de iciency o in ormation that will be the State allowing him to win on the alue o the company when it will increase. But, basically, my pre erence goes to an auction system: the assets are sold on the market and there is more disad antage linked to the lack o in ormation. Should the Go ernment acquires below the price where the market would normally ha e bought. Ultimately, strong institutions will be able to take liquidity o their assets, but not the lowest. Which will acilitate the concentration o inancial systems.

You ha e much criticized the rescue o Bear Stearns. Now that we measure the consequences o the bankruptcy o Lehman Brothers, is this still an error

There was, with Bear Stearns, a misdiagnosis o the problem. We were told o a liquidity problem while it was a question o sol ency. The ed was wrong and she replied with the wrong tools, it was ne er properly explained why she had made the choice to Bear Stearns to JP Morgan... There were other contenders. And then, a ter that, it took rescue annie Mae and reddie Mac.

It should not ha e been in ol ed at all

It was the thing to do in the case o annie Mae and reddie Mac, since the State had implicitly gi en his guarantee. I am not opposed to the action, but it should be discussed. Understand, what the Go ernment has a major in luence. In the light o the actions o the ederal Reser e, in estment strategy was light: shareholders were washed and protected creditors, in any case to Washington Mutual. At the time, the Go ernment has encouraged speculation. A ter the all o Bear Stearns, Lehman Brothers securitized o bad debts or the sole purpose to produce as collateral or obtaining unds rom the window o unding that the ed had open.

This is why he had let die Lehman Brothers

There are a ew questions o principle to assess this type o situation. Is that shareholders were aware o the situation and how long What is the management was aware What is the part o the acti ity that poses a systemic risk and can isolate In the case o Lehman Brothers, they knew, but they ha e not sought to protect the acti ities which posed this risk. While the ed has said "no" to Lehman, and then "Yes" to AIG. In the case o Wacho ia shareholders and creditors are protected, in the case o Washington Mutual, nobody does. rankly, where is the consistency

The ed will begin to pay interest on reser es which it is entrusted. What is this going to change

This means that it can expand its balance sheet as much as it wants because banks will be willing to gi e their reser es, abo e the regulatory threshold, now that they are paid. In this way, the ed is the means to carry out unusual actions. But it also means that it pursues a strategy where it maintains a risk on its balance sheet. Is it really his role