Health Care Explained on a Napkin

Four Ideas to Save the Economy

The Washington Post asked four business executives how to save the economy. Here are the four ideas the executives came up with:

1. Full nationalization of Fannie and Freddie. (Carl Goldsmith, chief investment officer of Berkeley Capital Management)
2. Suspend worker Social Security contributions to encourage growth through consumer spending. (Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College)
3. Suspend state sales taxes, with the federal government picking up the tab. (Laurence J. Kotlikoff, Boston University economics professor)
4. Lenders must renegotiate mortgage terms when prices in their area fall more than 20 percent. (Luigi Zingales, University of Chicago economist)

Source: What's the Big Idea

Congratulations Taxpayers, You Now Own Part of Your Bank

The WSJ reports that the U.S. government is taking equity stakes in nine U.S. financial institutions: Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Bank of New York Mellon, State Street, and Merrill Lynch.

According to the WSJ:

Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government's response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.

The government will purchase preferred stock, an equity investment designed to avoid hurting existing shareholders and deterring new ones. Such shares typically don't come with voting rights. They will carry a 5% annual dividend that rises to 9% after five years, according to a person familiar with the matter. By investing in several big firms at once, the government hopes to avoid placing a stigma on any one firm for getting government help.

One question immediately jumps out -- why don't taxpayers get voting rights?