I trust Tim; I think Tim is very smart; I think Tim is very public-spirited; I am sure that he is doing the best he can. That said, I cannot have an informed view of his plan until I see some real pieces of paper about it.
I have thought for a couple of months that the financial recovery package--as opposed to the monetary recovery package and the fiscal recovery package--needs to do three things:
- Cap current compensation at $500K a year--any sums in excess must be in the form of ten-year restricted equity investments in the firm, in order to give principals every incentive to make sure the firm still has value a decade hence.
- Greatly reduce the amount of risky assets that must be carried by the reduced risk tolerance of the private sector--ideally by fully nationalizing the housing GSEs, and having them borrow at the Treasury rate and buy up and manage mortgages at current market prices.
- Recapitalize the banks so that the risk tolerance of the private sector recovers to more normal levels--ideally through something like the Swedish model of temporary nationalization in order to avoid the creation of zombies.
I don't know how close Tim's plan comes to accomplishing the goals that would be accomplished by those three.
