Thomas Philippon (New York University) presenting 'Optimal Interventions in Markets with Adverse Selection' - Abstract: We characterize cost-minimizing interventions to restore lending and investment when fiÖnancial markets fail because of adverse selection. Because the government intervenes without shutting-down Öfinancial markets, the strategic decision to participate in a governmentís program reveals private information and affects the borrowing terms of agents outside the program. This has striking implications. First, the government cannot selectively attract good borrowers. More importantly, the cost and investment achieved of an intervention depend only on the rate faced by non participating borrowers. Simple programs of direct lending or debt guarantee are optimal while programs with equity injections, or asset purchases are not. Finally, when interventions are optimally designed, the government has no incentive to shut down private markets.