Why can’t the Treasury act like Buffett?

Posner argues that the government should behave like Warren Buffett, who made a $5b investment in Goldman Sachs in return for a guaranteed 10% dividend. (One surmises that the government may have to settle for less ambitious returns, though). Becker disagrees, arguing that government ownership introduces risk of political considerations overriding economical ones.

I side with Posner, if for nothing else that economic considerations – that is, economic from the view of each failing bank – has disappeared a long time ago. Government seats on boards is a small price to pay for a bailout. And as the markets rebounds, the government stake can be sold again.

Here in Norway, this actually happened – the government took over failing banks in 1987, at one point owning almost all of them, then selling them out again. Worked reasonably well, except for the bank shareholders, of course. But that is the point of shares – you can claim ownership to all the assets and all of the residual return. If the assets disappear, so does your claim.

Update:  Check out Tom Evslin’s nice little demonstration of how we got into this mess in the first place.

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