Pietro Veronesi and Luigi Zingales
City Journal – February 19, 2009
In spite of great expectations, the Financial Stability Plan that Treasury secretary Tim Geithner presented last Tuesday was short on details. Its biggest innovation was a way for the government to persuade private investors to buy toxic assets from banks. The investors would have started buying those assets at the banks’ prices already if they thought it profitable; instead, they held back. How much will it cost for the government to change their minds? Potentially, an amount so enormous as to risk the credit of the U.S. government itself.
