Column : Bail, but Wall Street not out of jail

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: the rescue plan—this is necessary as managements must bear the brunt of their imprudence to avoid any future problem of moral hazard. Shareholders will also have to face some losses, as they should, again to avoid moral hazard—the government will, in effect, be buying into the equity of stricken firms at fairly cheap prices. This is also a way to ensure that shareholders recover some (if not all) of their money. Presumably, the banks unburdened from their bad debt will eventually return to profit, which will enable the government to sell the acquired shares for a profit. At any rate, the financial sector is bound to share the burden—if necessary through additional taxes and fees—if the taxpayers make a loss on the rescue.

The bailout plan thus seems right on the ball—as did the earlier decisions on Fannie, Freddie, Lehman and AIG. Congress should pass it with unanimity. The US government’s action in this financial crisis will then perhaps be remembered as the plan which rescued the US and global economy from a deep depression, while punishing imprudent financiers for their mistakes. Seems like a fair deal.