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The recent exchange between Joe Stiglitz and Larry Summers about "secular stagnation" and its relation to the tepid economic recovery after the 2008-2009 financial crisis is an important one.Back in September 2008, when then-U.S. Secretary of the Treasury Hank Paulson introduced the $700 billion Troubled Asset Relief Program, he proposed using the funds to bail out the banks, but without acquiring any equity ownership in them.The ability to use funds to inject equity into the banks was not part of the bill presented to the U.S. House of Representatives.A few months later, when President Barack Obama's administration arrived, one of us (Soros) repeatedly appealed to Summers to adopt a policy of equity injection into fragile financial institutions and to write down mortgages to a realistic market value in order to help the economy recover. Summers objected that this would be politically unacceptable because it would mean nationalizing banks. No doubt the Obama administration helped to alleviate the crisis by reassuring the public and downplaying the depth of the problems, but there was a heavy political price to pay.The administration's policies failed to deal with the underlying problems, and by protecting the banks rather than mortgage holders, they exacerbated the gap between America's haves and have-nots.
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