Today's FT reports that the Brits , like Paulson, at first proposed non voting shares but have switched to voting shares.

Of course.

Paulson's  wrong headed proposal of non voting shares is consistent with his dogged refusal to admit that Mr.Market hasn't worked,won't work: Can't have the government owning voting shares lest it has at least the capabiity of expressing an opinon about how management should spend all this taxpayer money.. Which would be, oh horror  socialism..

The suggestion that the Govt. should pay more than the lowest achievable price to assist in recapitalization is  simply wrong. You can't maximize independent variables Acquiring toxic assets is one goal. Recapitalizing banks is a separate one.You can't maximize both in one transaction.

It's beyond naive to think that this Government(maybe any Government) can pay anything over an objectively ascertainable  price without providing an irresistable opportunity for sweetheart deals either  to assist banking friends or more likely simply in exchange for a bribe.

 Lead us not into temptation should be the rule.. Even if the decision makers were ivory tower economists or incorruptible civil servants (they exist, my daughter is one) there would be a temptation.

But in fact these vital decisions will be made by investment bankers on temporary assignment. These are self selected people who with great deliberation  chose  a career which offered the greatest chance of greatest personal gain but one that is routinely the result of dishonest practises masked by conservative dress and the mouthing of pious platitudes.Tom Wolfe isn't often right but he was in his characterization of these Masters of the Universe. And they will be negotiating these transactions with their peers. Either people they know or at least friends of friends. You got a problem with that ? Yeah,

Whatever the Govt. invests in, there can be no room for subjectivity.Either there has to be an ascertainable price either established by the market or by  some other device , perhaps the much discussed reverse auction

Alan Blinder in the Sunday Times lays out the principles: the Treasury should pay market price  and in exchange should get something of value.

Non voting shares represent the mirror image of those principles. There's no market price for non voting shares in an entity with no prospect of paying dividends sufficiently near in the future so as to have any current value when discounted for the time value of money.

OBTW ,ditto for preferred shares .The reason for the bail out is that these banks don't have cash.For any dividends. Nor should the Govt. be providing any for that purpose.Least of all should it be providing cash that can be round tripped back to it.

Nor is there any likelihood that the tax payers can ultimately benefit from a profitable sale. Voting shares have value. The value precisely of that vote which can potentially be attractive in a third party tender. For the value of non voting shares, see above.

So how should the Govt. ascertain the price to be paid for these voting shares? Possibly by the same reverse auction mooted for the toxic asset acquisition. If it wouldn't create an unacceptable delay they could do a twofer, request combined bids for a package of shares and assets and accept the most attractive proposals.

The much reviled Gordon Brown has gotten that right. Sooner or later maybe Paulson will.Don't hold your breath.