This is a Cato Special Podcast. I'm Caleb Brown. The Paulson bailout plan according to Cato Institute Senior Fellow Gerald P. Odriscoll has given us in a sense the worst of both worlds.

Its mere introduction is pumped added uncertainty to rattled financial markets.

The plan itself is getting less popular as time goes by. We spoke today.

Assume for a minute that this is not a crisis. What is the fix?

Well, if it's not a crisis, then the fix is already in front of us and has been occurring.

And that is that solid financial institutions with deep pockets are buying troubled firms that have great

brands.

So we saw that Bank of America purchased Merrill Lynch. We saw that Warren Buffett put in

five billion dollars of his money, of his company's money, into Goldman Sachs.

It was a very good deal, by the way, and that last night, Jed morgue chase purchased whamu a

Washington mutual a threat that has a great franchise

uh... but had made a lot of a lot of bad loan decisions

so uh... the old stockholders get wiped out

that this is the way markets

uh... work and recapitalize firms that have economic value but that for some reason

or in a weakened condition so absent or two crisis that's what would have that's how it would be solved.

Badgett's rule tells us that a central banker in cases where there are distressed institutions

should lend freely at penalty rates with good collateral.

When I spoke with Anna Schwartz months ago, that was her solution to this, she was very critical of Bernanke, but in this case, where's the good collateral?

Well, this is what is occurring in some instances, and I'm reluctant to second-guess a specific decision on a specific institution on the lending to them,

but there is a lot of dodgy collateral out there and I know that the European Central Bank

is worried about this and is already announced it's going to tighten its standards.

...