The Policy Farm Team

Aaron Welt

Columbia University 

Recent news about the economy gives little reason for optimism in the current state of financial affairs. Large banking firms, whose lack of prudence helped create the current downturn, receive bailouts from the government. Meanwhile, innocent bystanders won’t get any relief from the government, demonstrating the double standard for corporate and human citizenship in the US. But under the radar some creative strategies have emerged to getting the socially optimal result from the government’s bail-out of Bear Stearns, notably a turn towards “social wealth funds.”

            Instead of a huge give-away to banks who screwed the pooch in the housing market, the government should stipulate a demand from the financial firms that have beneficial repercussions nationally. A social wealth fund would provide this by requiring companies to repay the government’s bailout money with preferred stock options that would compensate with future returns. Robin Blackburn of The Nation suggests these investments could be put into state Social Security or Medicare, social services that truly benefit all members of American society. Use of social wealth funds would guarantee that companies that made bad investments are accountable to the many people who trust them to keep the economy floating while also allowing the benefits of the bailout to reach all echelons of the American economy.

            Several countries have already set up these funds, which duly helped Merrill Lynch and Citigroup get back on their feet while also putting corporate money towards socially meaningful expenditures. Other measures are certainly necessary to ensure an economic recovery is fair and just, especially extension of unemployment insurance to recently laid-off workers. But social wealth funds provide a dim of light in what looks like a dark year for the American economy.