The traditional, and somewhat unimaginative, official response to financial crises is for the Federal Reserve Bank to lower interest rates. The theory – and it’s more like a knee-jerk reaction – is that cheaper abundant debt will solve the problem. So, while the stock market tanks, eroding confidence along with equity wealth, including corporate balance sheets and 401(k)s, the response is to offer cheaper debt. There’s a better way.
Why not equity? As part of its mandate to stabilize the economy, what the government, via the Fed, should be doing is targeting the real culprit in the crisis,…
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Why Not Equity?
