Interesting tidbit in a Paul Krugman column in the Monday NY Times. He lauds U.K. Prime Minister Gordon Brown’s approach to bailing out U.K. banks, and says Brown is the real agenda-setter here with his recapitalization program, as opposed to the mineral bath Treasury Secretary proposed to give domestic financial services via his TARP plan. And then comes this:
This sort of temporary part-nationalization, which is often referred to as an â€œequity injection,â€ is the crisis solution advocated by many economists â€” 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, â€œThatâ€™s what you do when you have failure.â€ [Emphasis mine]
Now, this could be Krugman giving fellow economist Bernanke cover, or it could be Bernanke’s friends spinning things after the TARP auction program came under heavy fire as being slow, impractical, etc. Nevertheless, it seems there is newly a split between Paulson and Bernanke on the bailout.