Bailout Critic: Plan Could Cost $3 Trillion

Q: How does buying stakes in banks compare to the Troubled Asset Relief Program?

A: I think the original TARP plan of Treasury Secretary Henry Paulson was pretty silly -- buying the assets off the balance sheets of banks doesn't solve the problem. In fact, it creates, a whole lot more problems. There's a moral hazard problem there. ... You're basically saying, "So you guys recklessly speculated and leveraged up. Now you have all this crappy paper on your books. We'll take it off your hands." That's a terrible way to approach it.

Related

Business News: Sign Up for MONEYScope E-Mails

The Gordon plan, and we can call it the Brown-Buffett plan, makes a lot of sense. You get capital where it's needed. You do it at a price that's set by the market. You do it on terms that are beneficial to the taxpayer because why would private equity put money into something if it was not going to survive or do so on bad terms? In this environment, cash is king. You know the private equity guys like Buffett are driving a hard bargain. Why not let the taxpayers ride along with them?

Q: Why did buying bank stakes initially meet with resistance from the U.S. Treasury department?

A: I have to think it's idealogical. I think we've gotten to the point where it's pretty clear that the vast majority of the senior people in this administration, they're against government doing anything, and I just think it's bad ideology saying, "Well, we don't want the government to be investing here." You know, here's the problem with free markets: there is a natural tendency on the part of human beings to think shorter term versus longer term and if you take the free market ideology, the free market absolutism ideology to its extreme, you could basically create a case for why there should never be referees on the football field.