Stein Joins Obama Team
January 29, 2009, 12:01 pm
Harvard Finance Expert Stein Joins Obama Team
Harvard University economist Jeremy Stein is leaving to take a job with the Obama administration, working for Larry Summers. The move brings one of the country’s leading finance experts to Washington D.C. — one who’s had some strong opinions about how the government has handled the financial crisis so far.
 |
| Stein (Harvard) |
Mr. Stein had strong reservations about the Treasury’s original plan for buying banks toxic assets, complaining that it would entail paying over-the-market prices without getting anything in return. And he bristled when the Treasury’s revised plan, which entailed banks giving the government preferred stock, didn’t include a suspension of dividends.
“Simply put, the government should force the banks to suspend all dividend payments,” he told The Wall Street Journal in October. “It makes absolutely no sense for the government to put money into the banks, only to see a significant fraction of it flow out again as dividends to shareholders, and in many cases, bank executives with large equity stakes.”
Earlier this month, Mr. Stein was among the economists the Journal asked for prescriptions on how to get out of the economic crisis.
He advocated aggressive government audits of banks, aimed at separating solvent ones from insolvent ones. Once that was done, insolvent banks would be forced into closure or sale while solvent ones would be pushed to raise more private capital. In addition to dealing with the bad bank problem, putting the plan in place would remove much of the uncertainty in financial markets that the government’s ad hoc approach to banks thus far has helped instill.
In the longer run, Mr. Stein thought that there needed to be a new mechanism for resolving financial distress in financial firms that keeps some of the features of bankruptcy but avoids the problem of runs that can make one firm’s troubles metastasize across the financial system. –Justin Lahart
Permalink | Trackback URL: http://blogs.wsj.com/economics/2009/01/29/harvard-finance-expert-stein-joins-obama-team/trackback/