James Hamilton On Improving Bailouts

James Hamilton of Econbrowser writes "Bailouts should be no fun." The trust of his argument is that bankruptcy proceedings are slow, freezing assets and lowering economic activity, exerting substantial spillovers or externalities on otherwise health pockets of the economy. A representative of taxpayers' could speed negotiations and lower externality costs by demanding concessions from owners, creditors, management, and workers in return for bailout funds. Taxpayers would benefit if the bailout funds were less than the avoided externality costs. Hamilton concludes,

If properly implemented, the taxpayers should leave the negotiating table pleased with the deal they achieved, and everybody else should leave battered, comforted only by the knowledge that, had they not made those concessions, things would have been even worse.

On the other hand, if everybody and their grandmother is lining up for a bailout, and pulling political strings...to make sure they get it, I read that as prima facie evidence that the taxpayers' interests are not being properly represented.

It appears that everybody and their grandmother is lining up. In a previous post, I named three banks, automotive firms, and a couple of pornographers. Cities, states, insurance companies, credit card companies and others can be added to the list. Hamilton's proposal might be a good way to shorten the line.