Finance profs to Congress: “Bail out people, not corporations”

Deborah J. Lucas, Sloan Distinguished Professor of Finance and Director, MIT Golub Center for Finance and Policy

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A group of top financial economists from universities around the country, including many of my colleagues at Sloan, released a letter this week urging Congress to direct assistance to the individuals hardest hit by the crisis, not corporations. Read the full letter on ProMarket, the blog of the Stigler Center at the University of Chicago Booth School of Business.

The critical point is that bankruptcy for large corporations does not mean liquidation. Those businesses can continue to provide products and jobs without using scarce public funds to bail out investors. Capitalism can only work as a social contract if risk-taking means not only reaping rewards in good times, but also absorbing losses when times are bad.