An Argument For Timid Action On the Financial Crisis

Probably few will disagree that the goal is desirable. Yet many, of faint heart, fearful of change, sitting tightly on the roof-tops in the flood, will sternly resist striking out for it, lest they fail to attain it.

-FDR, 1932

Alan Blinder, an economics professor, former Fed Vice Chairman and, as the New York Times, interestingly, chooses to point out at the end of his op-ed (will they do this for all guest pieces now?), someone who has "advised many Democratic politicians" (but never, presumably, any Republican politicians?)), writes in favor of a form of partial nationalization, the "good bank, bad bank" split (guess who gets the bad bank):

If worst really does come to worst, the other options may evaporate, leaving the government no choice but to nationalize some banks. (Think Fannie Mae and Freddie Mac.) But, please, let’s not rush there. Let’s first at least explore what is called the “good bank, bad bank” approach. What’s that? While there are many variants, the basic idea is to break each sick institution into two. The “good bank” gets the good assets, presumably all the deposits and a share of the bank’s remaining capital. As a healthy institution, it can presumably raise fresh capital and go on its merry way as a private company.

The “bad bank” inherits the bad assets and the rest of the capital — which, after appropriate markdowns of the assets, will not be enough. So, again, someone must fill the hole. And, realistically, given the mess we’re in, much of that new capital would likely come from the taxpayers. Here’s a prediction: We will get to the good-bank, bad-bank solution sooner or later. Wouldn’t it be nice if it was sooner?

(Emphasis supplied.) Ok, this is not much of an argument in my opinion. Why does Blinder support this approach? In essence, Blinder is arguing against nationalization of banks. He hypothesizes many difficulties (I write "hypothesize" because we have never done itand thus have no actual evidence that it will happen)) and Blinder is speculating in my opinion. Here is his pitch against nationalization:

WHERE TO DRAW THE LINE? First and foremost, the Swedish government had to deal with only a handful of banks; we have more than 8,300. Numbers matter, because deciding where to draw the nationalization line isn’t easy. Presumably, no one wants to nationalize all the banks, thousands of which are healthy. But where do you stop, once you start?

(Emphasis supplied.) Hmm, "it isn't easy" to know where to draw the line is the argument here? But of course, taking over the "bad banks" will be easy as pie. First reaction, not at all convincing. This is a mess. Of course no option is going to be easy.

On top of that, Blinder's approach is to stick taxpayers with the "sh*tpile" and let the banks skip merrily away with the "good bank." The question is why? Because "drawing the line" ain't easy is not much of a justification in my opinion. Blinder continues:

Suppose we nationalized four banks. Bank Five would then find itself at a severe disadvantage in competing for funds with the government-backed quartet. Forced to pay higher interest rates to attract depositors and other creditors, its profitability would suffer. Soon, Bank Five might start looking like a candidate for nationalization, too — followed by Banks Six, Seven and so on.

This is sheer speculation and, in my opinion, certainly remediable. Any competitive advantage a nationalized bank would have would almost certainly be shortlived, as nationalization is temporary, and for that short period of time, the government could offer financing to other banks at the same terms the nationalized bank is receiving. Personally, I doubt Blinder's competitive advantage theory simply because the short term damage to the image of a bank that had to be nationalized would pretty powerful. Indeed, it is one of the reasons why Citibank should be nationalized already - it already is suffering all the effects of image damage, it already is getting tons of government money and it is already 36% owned by the government. At this point, Citi is a zombie. If nothing else, we can try nationalization on Citibank and see how it works.

Blinder continues:

THE DOMINO EFFECT As stock traders began to contemplate the nationalization of Banks Five, Six and Seven, their share prices would tank, and short-sellers might consign the companies to an early grave.

Um, Citi is trading at 1. BOA is at 3. All of the financial stocks are way down. The domino effect has already happened. So much for this rationale against nationalization.

THE MANAGEMENT CHALLENGE The Swedes had a relatively simple task. They never had to deal with institutions of the size and complexity of our banking behemoths. Mr. Geithner has emphasized that governments are ill-suited to manage businesses. I’d take the point a step further: Overseeing the management of dozens, or hundreds, or maybe even thousands of nationalized banks is a daunting task.

Of course it is a daunting task. this is not an option of choice. It is a necessary evil. This is not even an argument in my opinion.

POLITICAL OBSTACLES The process of nationalization and reprivatization went amazingly well in Sweden partly because it was remarkably free of political interference. Would that happen here? You decide. My bet is no.

Well, as long as you are betting Mr. Blinder, that makes me feel much better. Here's a political reality for Mr. Blinder to contemplate - is Congress gonna pay for his "good bank, bad bank" proposal? My bet is no. Now what?

Now Blinder practices psychology:

THE CONFIDENCE QUESTION Finally, because nationalization runs counter to deeply ingrained American traditions and attitudes, there is a danger that it might undermine rather than bolster confidence. As I said, this is not Sweden. The Treasury, of course, would never use “nationalization” in public; it would invent some nice euphemism. But the commentariat would not be so constrained.

(Emphasis supplied.) When FDR embarked on The New Deal, he REALLY took on "deeply ingrained American traditions and attitudes." And the commentariat blasted him. But the American People were happy someone took bold action In the end, Blinder describes a timid approach that in effect is as risky as the bolder approaches that have been proposed. We need bold now. As FDR said in his 1932 Oglethorpe speech:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.

Blinder is not ready to be bold.

Speaking for me only

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    Krugman on Good bank Bad bank: (5.00 / 1) (#1)
    by andgarden on Sun Mar 08, 2009 at 11:31:53 AM EST
    [T]he good bank-bad bank thing seems to implicitly carry the assumption that someone, namely you and me in our capacity as taxpayers, guarantees the bad bank's liabilities. In which case we are in fact nationalizing the losses, but privatizing the gains.

    One thing that seems clear to me is that the banks now holding the sh!tpile can't be allowed to value it by themselves.

    Any way you slice it... (5.00 / 1) (#2)
    by santarita on Sun Mar 08, 2009 at 11:54:31 AM EST
    there will be socializing the losses and privatization of gains.  Any way that you slice it thee will be a ton of our money injected into the financial system to fill the losses and engineer a restructuring.  Unless you want the government to take over permanently the financial system, at some point private people (investors) will take over existing banks or form new ones and get the benefit (gain) of all that taxpayer money.

    Let's slice it thinner (5.00 / 2) (#3)
    by Big Tent Democrat on Sun Mar 08, 2009 at 11:59:40 AM EST
    Your comment seems to me to mbrace Blinder's view that it does not matter how much the taxpayers are gonna get screwed, just that they get screwed.

    Here's the thing - there is no less risk in the timid approach Blinder proposes. Indeed, I would argue there is more risk now.


    And that risk is what? (none / 0) (#15)
    by santarita on Sun Mar 08, 2009 at 12:41:50 PM EST
    Any way you slice it, the taxpayers are on the hook for a lot of money.  What we are talking about is the most bang for the buck.

    I am not an advocate of Blinder's approach.  But he does point out some of the pros and cons.  

    Frankly, I am an advocate of the approach of taking systematic actions now that begin to downsize the various exposures to a level that is more manageable for an eventual temporary takeover and reprivatization.  And I'd like to see clawbacks and prison time for the senior management and boards of directors that failed to do their fiduciary duties.  


    The risk of what is what? (none / 0) (#18)
    by Big Tent Democrat on Sun Mar 08, 2009 at 12:46:08 PM EST
    The risk is a transfer of a trillion dollars at least in government funding that could be used for worthy government initiatives.

    I am not someone hung up on "moral hazard."

    But to pretend there is no cost to the government using  more than trillion dollars of its assets to transfer to bank stakeholders because we are scared of the word "nationalization" is simply insane and I am amazed that any person who claims to be progressive would argue for it.

    I have a proposal though - we could bail out the banks and not "pre-privatize" in exchange for a heft tax on the good banks for taking the "bad assets" off their hands. Say a 10 year "bad bank" surcharge to pay off for the cost to the Blinder plan.

    How do you like that proposal?


    I agree... (none / 0) (#28)
    by santarita on Sun Mar 08, 2009 at 01:19:53 PM EST
    when the dust settles, the banks pay more.  And moral hazard is pretty low on my list of concerns.

    I don't want to see any more taxpayer $$$ than necessary go down the rat hole.  But I am resigned to the fact that whatever steps are taken are going to require a huge amount of taxpayer money.  And the only immediate benefit that we may see from all of that $$$ is a national and international financial system that functions the way it should (not the way it has been).  I don't want to see robber barons prosper.  But I am not a big believer in conspiracy theories either.


    Conspiracy theories? (none / 0) (#30)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:21:37 PM EST
    Where did that come from?

    Timidity is a "conspiracy theory" now?


    Not From You... (none / 0) (#43)
    by santarita on Sun Mar 08, 2009 at 01:36:38 PM EST
    to be sure.

    But I've read a lot of stuff on other blogs that talk populist conspiracy theory.  

    There is a lot of misinformation out there in the blogosphere and wild speculation.  God knows that the subject is intricate and complicated. One of the reasons I like TL is that people here are more dedicated to searching for knowledge.


    Occum's Razor (none / 0) (#50)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:43:24 PM EST
    Greed and incompetence.

    can we add deregulation (none / 0) (#65)
    by jeffinalabama on Sun Mar 08, 2009 at 02:21:18 PM EST
    to your Occam's razor, BTD, and make it a trifecta?

    Or do you list that under either greed or incompetence? It could fit under either or both I suppose.


    What's an example of a conspiracy theory? (none / 0) (#93)
    by lambert on Sun Mar 08, 2009 at 05:56:10 PM EST
    No point throwing the term out there. After all, one apologist's "conspiracy theory" could be another researcher's documentation of normal business practices. (See William Black on loan documentation, on that.) And wasn't it Adam Smith who said "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public"?

    Here is an example: (none / 0) (#106)
    by santarita on Sun Mar 08, 2009 at 06:52:42 PM EST
    I see a lot of comments in other blogs talking negatively about how all of this $$$ went from the government to AIG and AIG used it to pay off counterparties like Goldman Sachs, Citi, Deutschebank etc.  And people want to know who the other counterparties are.  I've seen some commenters raising red flags because taxpayer $$ are being used to pay foreign counterparties.  

    The fact is that a lot of capital markets transactions involve credit default swaps and interest rate swaps.  And because of the size of capital markets transactions, major international banks and some private equity companies are involved.  They have the contractual right to demand that AIG makes good on the credit default swaps.  So there is no obvious preferential treatment going on here.  There is no big mystery about who the players are in the capital markets arena, in general.  

    Maybe people want to see what happens when the federal government says to foreign counterparties:  That contract that our corporations signed doesn't mean anything and we ain't paying up.


    Treatment is preferential in at least one place (none / 0) (#110)
    by lambert on Sun Mar 08, 2009 at 07:23:19 PM EST
    the 2005 bankruptcy bill. "Derivative counter parties at the front of the line ahead of other creditors in bankruptcy proceedings."

    Maybe people want to see what happens when the federal government says to its citizens:  Trillions of your tax dollars are going to prop up zombie banks that made bad bets and CEOs that got rich placing those bets.


    Credit Default Swaps Wouldn't... (none / 0) (#111)
    by santarita on Sun Mar 08, 2009 at 08:00:30 PM EST
    make a lot of sense if the issuer could defeat the purpose by filing bankruptcy.  They were trying to make CDS a perfect, bankruptcy proof instrument for eliminating risk.  Credit default swaps are tools that weren't used very wisely.  

    Eliminate risk? (none / 0) (#113)
    by lambert on Sun Mar 08, 2009 at 08:12:30 PM EST
    That doesn't seem likely in a market economy, does it? Looks to me like the insiders knew the Big Sh*tstorm was coming, and moved to protect themselves.

    As to policy, Lord Eschaton is, like, a real economist:

    I know I'll make this point a billion times before this is all over, but there's a difference between thinking that well run financial intermediaries (which, in theory, competition will create) are necessary for a modern economy and believing that the semi-oligopolistic system of financial intermediaries which have demonstrated beyond all reasonable doubt that they're at best incompetent and most likely some combination of incompetent and incredibly corrupt should be maintained at a cost of hundreds of billions of dollars (optimistically) in taxpayer money.

    I've been trying to say the same thing for months, but he uses better words, and besides, I get shrill.


    It is a legitimate point of view to... (none / 0) (#117)
    by santarita on Sun Mar 08, 2009 at 08:44:27 PM EST
    say that the current system is rotten and should be allowed to fail completely.  Let the chips fall where they may.  

    I'm not defending the system.  I'm explaining various components of it.  Credit default swaps are not inherently evil.  They are like loan guaranties and letters of credit.  


    Blinder's take is exceeding strange (none / 0) (#17)
    by RonK Seattle on Sun Mar 08, 2009 at 12:43:44 PM EST
    Give the Good Bank component of each bank the deposits?  Deposits are a bank's liabilities, and their most demanding liabilities at that.  In a sound financial institution, deposits are offset by more than equal assets - and assets of sufficient liquidity to comfartably satisfy withdrawals of those deposits.

    Traditionally deposits are ... (none / 0) (#31)
    by santarita on Sun Mar 08, 2009 at 01:21:58 PM EST
    used lent out again at higher interest rates.  So deposits are liabilities but also ways of making money for banks.  

    No, the *loans* are money-makers for the banks. (none / 0) (#104)
    by FreakyBeaky on Sun Mar 08, 2009 at 06:43:42 PM EST
    More precisely, the interest payments on the loans.  The deposits are still liabilities.

    Correct. (none / 0) (#107)
    by santarita on Sun Mar 08, 2009 at 06:53:10 PM EST
    Here is the way to create the good bank/bad bank: (none / 0) (#24)
    by steviez314 on Sun Mar 08, 2009 at 01:13:46 PM EST

    There is no taxpayer risk, and the bad bank liquidates over time, which is far preferable to the US gov't hitting the market with $600B of assets for sale at once, as they would have to do to nationaize for only "a short time".


    Did not read the link (none / 0) (#33)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:24:12 PM EST
    But I have to ask, does it claim, as you do "no taxpayer risk?"

    Yes, because there is no further taxpayer money (none / 0) (#38)
    by steviez314 on Sun Mar 08, 2009 at 01:31:19 PM EST
    being put in.

    The worst assets get put into the bad bank, along with some of the banks's long term debt, preferred and common equity.

    The bad bank merely runs off its current assets over their regular maturity schedule.  If it can meet its liabilities, great--if not, the bondholders and equity holders take the hit.

    The gov't insured deposits go with the good bank, and its better assets.  This bank is well capitalized.


    This is basically cramdown then (5.00 / 1) (#42)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:36:27 PM EST
    I like it.

    Who is ready to sign up for a cramdown of bank creditors?


    It's not a toal cramdown, since it doesn't (none / 0) (#49)
    by steviez314 on Sun Mar 08, 2009 at 01:43:16 PM EST
    foresee the gov't taking the assets and having to sell them into the open market quickly (I'd love to be a buyer for that!).

    Instead, it allows an orderly run-down.  Hey, maybe the cash flows of the assets are enough, maybe they will recover over time, maybe not, but that risk is with the current owners of the capital structure of the bank, not the taxpayers.

    It's also like a forced debt/equity swap..it makes a percentage of the current bondholders specifically at risk to the bad assets, and gives them instead an equity position in the good assets.


    It's not an upfront cramdown (none / 0) (#52)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:45:00 PM EST
    you mean. Well, ok, maybe the assets are really really worth a fortune.

    Anyway, so long as the government's exposure is ZERO, who could possibly object to this approach? Let's do it. why isn't Geithner proposing this?  


    As Krugman blogged today, (none / 0) (#62)
    by steviez314 on Sun Mar 08, 2009 at 02:10:10 PM EST
    the bondholders would probably sue.  Now, I expect someone will sue sooner or later anyway, so this isn't my biggest issue.

    What I do wonder is who actually are the banks' bondholders.  I can imagine some are foreign governments or soveregn wealth funds.  And frankly, if China said to Geithner that they dodn't want their bonds to go into the bad bank, I'm not sure what he could do.

    Our prior fiscal policies may have really limited some options here.


    More on China's stake (none / 0) (#74)
    by Politalkix on Sun Mar 08, 2009 at 03:27:51 PM EST
    is provided in this [link]

    There's no transparency at all (none / 0) (#95)
    by lambert on Sun Mar 08, 2009 at 06:08:54 PM EST
    In the absence of transparency (or accountability) aren't all these ideas about what to do purely academic?

    Bottom line is we've spent ZILLIONS on the bailouts so far, and nobody will say where it went, or what effect, if any, it's had.

    How is it possible (for anybody but an insider's insider) to make policy recommendations under such circumstances? Upthread, somebody shot down one suggestion because "somebody might sue." Well, without transparency, we have no idea who owes whom or how much -- so how is possible to know who's liable? Anybody might sue anybody. And this is our bailout money, remember.


    There is some transparency - (5.00 / 1) (#100)
    by santarita on Sun Mar 08, 2009 at 06:30:19 PM EST
    if you go to financialstability.gov, it lists the various programs.  

    The feds are not doing a good job of explaining things.  In part I think this is due to traditional bank culture of secrecy.  In part I think that they are trying to maintain some confidence in the overall system to prevent outright panic.  And in part because they aren't quite sure of what they want to do.


    Sure, they list the programs (5.00 / 2) (#109)
    by lambert on Sun Mar 08, 2009 at 07:17:04 PM EST
    but that's hardly transparent.

    The issue is who got the money and what they did with it. It is, after all, our money.

    #1 , one possible explanation is a culture of secrecy.

    #2 Yes, one possible explanation is an altruistic concern for the common weal.

    #3 And another possible explanation is that they're simply looting it (or, in more polite language, corruption is limiting policy choices).

    Human nature being what it is, and recent and past history being what it is, I'm leaning toward door #3. (And really, isn't everyone else? After all, if there were trust, would we be in the position we're in? In fact, there is no trust because there are strong reasons not to trust.)


    Could Very Well Be Corruption... (5.00 / 1) (#112)
    by santarita on Sun Mar 08, 2009 at 08:09:49 PM EST
    but in order to uncover the corruption one has to understand which actions are serving a legitimate purpose and which aren't.  One could say that the intertwining of the political, financial, and media worlds is corrupt and the corruption brought about this mess.  But that is such a generalization as to be almost meaningless.  

    I think that there is a greater transparency now than in the last days of the Bush Empire but not yet enough.


    Up to a very recent point (5.00 / 1) (#116)
    by Militarytracy on Sun Mar 08, 2009 at 08:42:28 PM EST
    Everything that everyone was doing was on the actions serving legitimate purpose list.  Define what actions would be serving a legitimate purpose at this time that we must be left out of the fully transparent loop on?

    I can think of two... (5.00 / 2) (#118)
    by santarita on Sun Mar 08, 2009 at 08:48:34 PM EST
    negotiations with foreign governments like China over how their interests are affected and may or may not be protected..

    and the impact of spilling all the beans at once may shake the confidence left in the market and accelerate the death spiral.


    How about if we stopped the death spiral? (none / 0) (#127)
    by Militarytracy on Sun Mar 08, 2009 at 10:42:11 PM EST
    Lambert (5.00 / 1) (#122)
    by gyrfalcon on Sun Mar 08, 2009 at 09:38:54 PM EST
    for God's sake grow up up and go read what happened to Bear Stearns.  Your simplistic conspiracy theories are embarrassing you.

    Do the S/H of the Bad Bank have. (none / 0) (#45)
    by santarita on Sun Mar 08, 2009 at 01:40:36 PM EST
    upside potential from the good bank?  If the Bad Bank owns the Good Bank wouldn't that be the case?

    Why not wipe the shareholders out, create a new bank and convert the holders of debt into equity?


    Why can't a nationalized bank do (5.00 / 1) (#48)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:42:33 PM EST
    that and much more easily?

    Indeed, why not try all this out with Citibank? It is already insolvent anyway.


    We're Talking About Mechanisms... (none / 0) (#55)
    by santarita on Sun Mar 08, 2009 at 01:47:30 PM EST
    for achieving the same thing, I think.

    The bondholders possibly include sovreign wealth funds.  If we were just talking about limited national repercussions, the solution  would be much easier.


    You bring up a good point. (none / 0) (#59)
    by steviez314 on Sun Mar 08, 2009 at 01:54:44 PM EST
    How much of the banks' bonds does China own, and are they applying behind the scenes pressure to not nationalize.  This adds another layer to the issue.

    That's why it was so important in the Citi deal that Singapore and the Saudis also converted their preferreds to common.  It's the first sign of realization by foreign holders that they may have to bite the bullet too.


    My theory for a long time has been... (none / 0) (#67)
    by santarita on Sun Mar 08, 2009 at 02:30:03 PM EST
    that  geopolitical implications are one of the driving forces behind what is going on.  In recent days, I've read reports about the French government talking to Paulson about not letting AIG fail.  

    One of the victims of this meltdown has been American creditability in the international marketplace.  Enron was a 1 kiloton bomb but this like 100 times worse.


    It's not the crime, it's the coverup... (5.00 / 1) (#96)
    by lambert on Sun Mar 08, 2009 at 06:10:13 PM EST
    The old Beltway adage seems to hit home, here.

    The longer we prop up the zombies, the worse it gets.


    And your expertise (none / 0) (#123)
    by gyrfalcon on Sun Mar 08, 2009 at 09:40:58 PM EST
    on the innards of the way the financial system is?

    This good bank/bad bank idea really doesn't (none / 0) (#57)
    by steviez314 on Sun Mar 08, 2009 at 01:51:30 PM EST
    need the government to involve itself in the asset sales or determining any write down numbers.  Time will take care of both.

    I do wish they would at least try this with one bank, just to see the market reaction.  I would think a bank would WANT to do this, except for CEO's egos and empire building.

    The only real effect to this is that the debt hodlers finally get slapped in the face with the realization that they own this stuff, and the gov't is not going to rescue them.  On the other hand, the gov't is also not going to firesale the assets to get them pennies.


    Nationalization means (none / 0) (#29)
    by andgarden on Sun Mar 08, 2009 at 01:20:40 PM EST
    that the government seizes all of the assets and sells them (at some point) for what they're worth. The "good bank" can be reprivatized immediately. The government can hold onto the "bad bank" (really the sh!tpile) for any length of time. Maybe the value will go up, and maybe not. In worst case, it can be auctioned.

    What the government must not do is to attempt to reinflate the bubble. And it seems to me that, aside from nationalization, that is the only option.


    The ability to sit on the bad assets (none / 0) (#60)
    by andgarden on Sun Mar 08, 2009 at 02:00:23 PM EST
    instead of constantly injecting money into bad banks is the advantage of nationalization.

    The money injections don't solve (none / 0) (#68)
    by andgarden on Sun Mar 08, 2009 at 02:41:07 PM EST
    the problem because the bad assets are still attached to the good banks.

    Under what circumstances (none / 0) (#76)
    by andgarden on Sun Mar 08, 2009 at 03:38:56 PM EST
    will the banks begin to loan again if they continue to hold these bad assets? I would be very interested to know if there were any.

    Perhaps... (none / 0) (#78)
    by santarita on Sun Mar 08, 2009 at 03:56:37 PM EST
    if the government assures the financial community that regardless of the size of the hole in the financial statements  of the banks caused by toxic assets that it will fill that hole, then banks will have confidence in one another as lending partners.  The stated purpose of the stress tests is to determine the size of each financial institution's need so that the government can inject the necessary capital.  That's the theory, at least.

    A real nationalization of the banking industry might be necessary for a while in order to free up credit.  The federal government could then make existing banks irrelevant.


    Yup (none / 0) (#79)
    by andgarden on Sun Mar 08, 2009 at 04:14:08 PM EST
    It's a good argument for nationalization. Or at the very least, telling the banks to take a reduced price for the assets, or else.

    If the government pays 2006 prices for the assets, it will be a huge scandal.


    If understand this correctly (5.00 / 1) (#89)
    by cal1942 on Sun Mar 08, 2009 at 05:40:43 PM EST
    the latest Geithner trial baloon was exactly that.  The government would lend money to buy bad assets, presumably at face value. The loans would be non-recourse.  Any income the borrower does get will he theirs to have and hold. If the borrower defaults the government can only take back the paper. There would be no claim on any income (bound to be some) that the borrower gets and no claim against the borrowers other assets; after all it's non-recourse.

    So, in effect, weuns get stuck with the full face value of the sh1tpile while bank stockholders now own shares in a cleansed bank. For the officers of the bank and the bank's shareholders life goes on as though nothing ever happened, as though they had never f**ked up trying to make a big buck.

    That all really sounds like an old mob scam that first became fashionable in the early 60s.


    I read in a Times (none / 0) (#82)
    by gyrfalcon on Sun Mar 08, 2009 at 05:06:13 PM EST
    Op-Ed a few days ago that TARP I money for some reason went to bank holding companies, not banks themselves, and that the holding companies were holding onto it rather than pushing it out to the banks to lend because they were terrified they wouldn't have the liquidity to deal with a massive demand for redemption or whatever resulting from another Lehman-type failure, or some other event.

    Does that make sense to you?  If so, why do you think Paulson directed the $$ to the holding companies?


    Honestly, (5.00 / 1) (#120)
    by gyrfalcon on Sun Mar 08, 2009 at 09:33:57 PM EST
    I just don't buy the "Bush robbing the piggy bank" on this.  My sense is that Paulson was so scared, he was quite literally hyperventilating in his public appearances.  I think they were trying to do what they thought was the right thing under the circumstances and within their somewhat limited worldview of what was going on.

    Bush quite obviously didn't know his a** from his elbow on this, but was frightened enough to go for whatever Paulson told him was necessary.

    The "saving their fat cat buddies" idea is just lame and way too easy an excuse for not thinking seriously about it.  I don't buy it, even about Bush.


    There May Be Corruption... (5.00 / 1) (#125)
    by santarita on Sun Mar 08, 2009 at 09:58:29 PM EST
    but also incompetence and blind faith in an ideology that thought that the instinct for self-preservation somehow transmitted from individuals to the institutions they served.

    PS  I briefly checked out seeking alpha and then went back to read the diary.  The diary misunderstood the article that was quoted from seeking alpha.  Seeking alpha itself isn't bad but a little too oriented to the daily stock market.  Not that that is bad, just not my cup of tea.


    One more (none / 0) (#128)
    by gyrfalcon on Mon Mar 09, 2009 at 11:00:16 AM EST
    and that's almost incomprehensible complexity.  I tend to think that's had more to do with it, both then and now, than either corruption, blind faith or incompetence.

    Nobody has ever been here before.  This ain't your grandfather's depression.

    I simply refuse to give Kos a single click ever again, so I didn't even look at the diary.  If you say the diarist didn't get it, I believe you. As you say, the Seekingalpha blog ain't my cup of tea, but it's no whack job wingnut load of uninformed bloviation, which was all I was trying to be sure you knew.


    If There Are No Conditions On the ... (none / 0) (#99)
    by santarita on Sun Mar 08, 2009 at 06:25:37 PM EST
    use of the money, then management is free to do what it wants with the funds (subject to fiduciary duties to the stockholders).  Paulson sold Tarp I in general  as a way of getting the markets going and the banks lending.   So people had this expectation that the direct injection of capital to the 9 banks was so that they would start lending - almost a pass through concept.  But the reality, I think, was that Paulson was hoping that a direct injection of capital would ease the solvency issue and promote interbank lending.  So it was a direct pass through nor was it intended to be.

    Huh (none / 0) (#119)
    by gyrfalcon on Sun Mar 08, 2009 at 09:28:56 PM EST
    Thanks for that, Santarita.  It makes sense.

    As you know, I'm widly allergic to conspiraacy theories on this and I do think that Paulson et al were doing what they thought would be most likely to fix the system.  Doesn't mean they were at all far-sighted enough, but my sense is they've all been terrified enough not to want more than to fix things as best they could.



    Cash injections haven't helped lending so far (none / 0) (#94)
    by lambert on Sun Mar 08, 2009 at 06:03:49 PM EST
    The cash injections:

    1. Been passed right through the banks to their counterparties

    2. Been used for compensation

    3. Stuffed in the mattress.

    That's the great failure so far -- no lending. (And it's not even clear who would be lent to and for what.)

    The difference (none / 0) (#32)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:23:22 PM EST
    is the Government gets the "good bank" and the "bad bank."

    As to negotiations with bank creditors, I think that is for the new bank to handle in the manner of a private entity.


    Timidity Versus Prudence (5.00 / 2) (#4)
    by santarita on Sun Mar 08, 2009 at 12:03:57 PM EST
    Has there been any actions taken by the Obama Administration which makes it either impossible or impracticable for the federal government to take over (nationalize) the banking system?

    In other words there is nothing at this point terribly inconsistent with such a takeover.  I would want the government to proceed with haste but prudently.  Prudence requires due diligence (i.e. making sure you know what the assets and liabilities are and who holds the keys to the cash register and front door).

    Nothiing to make it impossible (5.00 / 3) (#5)
    by Big Tent Democrat on Sun Mar 08, 2009 at 12:08:25 PM EST
    Indeed, day by day, in blinder's words, "thw worst is coming to worst."

    Is it necessary that the economy completley crater and we have 12% unemployment before we take bold action on the financial markets?

    What you deem prudence is not at all explained as prudence. What is "prudent" about it?


    Prudence Requires ... (5.00 / 0) (#11)
    by santarita on Sun Mar 08, 2009 at 12:35:23 PM EST
    due diligence and pursuit of alternatives that will be effective and at the lowest cost and risk.  

    If the Bush Administration had been prudent, we wouldn't have invaded Iraq.

    Again, I ask what has the government done that makes it impossible to nationalize in 3 months, 6 months or a year?  

    Another question, what is the potential harm in waiting versus the potential harm in acting tomorrow?


    At the lowest cost and risk to whom ? (5.00 / 1) (#14)
    by Militarytracy on Sun Mar 08, 2009 at 12:41:07 PM EST
    And if you don't understand what the potential harm in waiting versus the potential harm in acting tomorrow can be within a total financial meltdown, take a look at the new wave of housing foreclosures that took place with only one payment or no payment ever being made on the loan.  Everyday that the economy is not "stabilized" is another day we are all part of that spiral into the abyss.

    I don't see the immediate connection... (3.00 / 1) (#19)
    by santarita on Sun Mar 08, 2009 at 01:00:31 PM EST
    between foreclosures and nationalization of Citi.  

    Stablilization of the economy equals (5.00 / 1) (#91)
    by Militarytracy on Sun Mar 08, 2009 at 05:50:19 PM EST
    bank nationalization and HOLC.

    How long can you (5.00 / 3) (#16)
    by Big Tent Democrat on Sun Mar 08, 2009 at 12:42:07 PM EST
    put off dealing with the issue? You write "Again, I ask what has the government done that makes it impossible to nationalize in 3 months, 6 months or a year?  Another question, what is the potential harm in waiting versus the potential harm in acting tomorrow?"

    You are willing to countenance 3 to 6 more months of inaction on the financial crisis because . . .  why exactly? You think that delay on the financial crisis does not do damage to our economy? Really?

    This is timidity for no purpose trying to dress itself up as "prudence."

    Here's the question, do you like Geithner's plan? If so describe it and tell me what you like about it.


    Inaction??? (5.00 / 1) (#21)
    by santarita on Sun Mar 08, 2009 at 01:11:51 PM EST
    Why do you say there is inaction?  The government is proceeding in a number of ways of dealing with this crisis.  It has moved to provide liquidity and capital which admittedly are stop gap measures designed to halt the bleeding from the arteries, if not the veins.  The Fed has stated its intention to sell off the profitable parts of AIG, the insurance subsidiaries.  The Fed has set up facilities to provide trade credit.  In short, the government seems to be  doing what is normally done in a complex workout - keeping the business going while it determines how best to liquidate.  And if total or partial liquidation is best, then the best price is obtained for on going businesses rather than businesses that have shut their doors.

    I don't know what Geithner's plan is.  But what the government is doing is consistent at this point with both an orderly liquidation and a restructure.  There is one aspect that hasn't been much discussed and that is the geopolitical implications of whatever course is taken.  I think that is part of the reason Geithner has not been more forthcoming.  And the other reason is that he wants to maintain a least a shred of confidence  in the markets.    


    You don;t know what Geithner's plan is (5.00 / 3) (#26)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:19:01 PM EST
    Precisely my point.

    Stopgap measures are not a plan.


    three months is my limit for ... (none / 0) (#23)
    by santarita on Sun Mar 08, 2009 at 01:13:29 PM EST
    when I want to see more of a direction from Geithner.

    Are you Thomas Freidman? (5.00 / 1) (#77)
    by ricosuave on Sun Mar 08, 2009 at 03:50:02 PM EST
    He kept telling us the next six months were critical on Iraq.  Remember how he did that every few months or so and gave us a never-approaching time-horizon over the course of several years?

    We shouldn't have to be guessing at this point.  We should know what Geithner/Obama wants to do, and what the trigger is and when it should happen.  This is not the invasion of Normandy...there is no need to keep the plans a secret.  No matter what they do, a bunch of people are going to hate it and scream about it on TV, and the republicans will claim it will end civilization as we know it (they said that about a few cents of gas tax in 1993, which is trivial in comparison).  So go ahead and get that over with, take a stand, man (or woman) up, and do something more than just a slight variation on what the Bush administration was happy with.


    "The Geithner Unit" (5.00 / 1) (#97)
    by lambert on Sun Mar 08, 2009 at 06:11:41 PM EST

    Better yet, "Tim Time" (none / 0) (#101)
    by steviez314 on Sun Mar 08, 2009 at 06:34:16 PM EST
    Need to riff on "Friedman Unit" (none / 0) (#108)
    by lambert on Sun Mar 08, 2009 at 07:09:43 PM EST
    Perhaps "Timmy Unit"

    Since the conventional wisdom today is that he'll be fired in June, I'd make the Timmy Unit three months -- on the theory that the cupboard will be bare at the point, and he may exit to the sound of "Well done" from his grateful masters.


    The Geithner/Obama Plan A at this point ... (5.00 / 1) (#102)
    by santarita on Sun Mar 08, 2009 at 06:35:45 PM EST
    appears to be to shore up the big banks until the real estate market stabilizes at which time the toxic assets will be valued properly and the banks that had a capital problem will no longer need government assistance.  

    With regard to AIG their plan is an orderly liquidation.

    This is what they have told Congress in various hearings.

    I think within three months, they will realize Plan A isn't working.


    Therein lies the problem (none / 0) (#27)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:19:28 PM EST
    with your analysis imo.

    Why? (none / 0) (#40)
    by santarita on Sun Mar 08, 2009 at 01:32:22 PM EST
    3 months more of a dyfuncitonal (5.00 / 2) (#46)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:41:25 PM EST
    credit market with no clear path out AT THIS TIME of spiralling into depression is unacceptable.

    The fact is Obama and Geithner should have been ready on Day 1 with a real plan. We can not afford 3 more months of this timidity and uncertainty.

    For example, I think Citibank need to be nationalized now - for 2 reasons, to signal that the Obama Administration is open to this bold action and because Citi is insolvent. It also can be the first experiment in how to handle a nationalization and reprivatization, maybe even doing the good bank, bad bank thing.

    It wil signal the end to indecision. Want it to come after "the stress test"? Fine, so long as that test is expedited.


    As I mentioned yesterday (5.00 / 2) (#64)
    by Steve M on Sun Mar 08, 2009 at 02:18:02 PM EST
    I don't think it is viable to take one bite at a time.  If you nationalize one bank with the prospect of more nationalizations to come, maybe, possibly, then you essentially freeze up the entire sector while everyone waits to see who else will be nationalized.  No one is going to put any kind of private capital into a bank when the government may grab it tomorrow.

    I think there has to be a triage approach to any kind of drastic action - do it all at once, say these banks over here are insolvent and need to be nationalized, these banks over here are fine and we won't be touching them.  It's like a company taking a writedown or issuing a restatement - you want to do it all at once and reassure the market that there is no other shoe about to drop.


    Well You and I Disagree.. (4.00 / 2) (#51)
    by santarita on Sun Mar 08, 2009 at 01:44:45 PM EST
    on the need for haste.  And experimentation is not what I want to see for something that has large geopolitical implications.

    Well (5.00 / 2) (#53)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:45:52 PM EST
    If you think this is not total experimentation, not matter what is done, then you know  a different history than I do.

    Sure (none / 0) (#37)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:29:22 PM EST
    the buck stops and all that.

    As I understand it, (none / 0) (#13)
    by andgarden on Sun Mar 08, 2009 at 12:38:11 PM EST
    the sh!tpile is contributing significantly to the liquidity trap.

    It is because the sh!tpile is eating the (5.00 / 2) (#92)
    by Militarytracy on Sun Mar 08, 2009 at 05:55:19 PM EST
    liquidity that the Fed keeps injecting in hopes of the banks loaning to you and I.  What ends up happening is that the banks must keep that liquidity on the books to counterbalance the sh!tpile that they are all carrying on the other side.  Add to that the layoffs the sh!tpile has brought about and how can a bank at risk take the risk of loaning anything to any of us?

    If only common sense were more common (5.00 / 5) (#12)
    by Militarytracy on Sun Mar 08, 2009 at 12:38:06 PM EST
    Both husband and wife very frustrated in this household this morning.  We did our best.  We've served our country, didn't buy more house than we could afford.....and yet these conartists and white collar thieving vandals are going to take us on this ride and it doesn't matter how we have conducted ourselves in the past.  I can't stop that, but if people out there involved in the industry that has done this seem to think this situation is an invitation for me to grab my ankles whether I like it or not they have another think coming, and I doubt I'm alone there.  Given how things only continue to get worse and Obama and friends only continue to remain lukewarm on real life solutions for the little people that are what this country is REALLY MADE OF I am experiencing our new President as a failure today.

    hmmmmmmmmmmmmmmmm! (5.00 / 1) (#7)
    by cpinva on Sun Mar 08, 2009 at 12:14:25 PM EST
    Mr. Geithner has emphasized that governments are ill-suited to manage businesses.  

    is he certain this was said with a straight face?

    based on recent events, it would appear that businesses are ill-suited to manage businesses. after all, it wasn't the government that managed them into the toilet, they just paved the way for the banks to do themselves in, and the banks dove in, head first.

    i am less than whelmed, by the displayed management accumen of the banks. i'll take my chances with someone who doesn't have a vested financial interest in the bank.

    the obama administration needs to act, not diddle. it's almost half way through his first 100 days, and they don't appear to have a plan. every day that goes by, without some concrete evidence of movement, the lower the markets and more unemployment.

    i realize there are other issues to be dealt with (the bush administration left a disaster on multiple fronts, no question), but the economy is the single most critical one right now. it must be attended to, quickly and firmly.

    The argument of complexity (5.00 / 1) (#80)
    by MrConservative on Sun Mar 08, 2009 at 04:48:19 PM EST
    America's banking system may be far more complicated than Swedens because of our size, but also because of our size we have far more resources to wade through things.  It pretty much neutralizes itself.  The "we're big so it's too complicated" argument falls flat on its face.

    Too big, too big (5.00 / 1) (#81)
    by ricosuave on Sun Mar 08, 2009 at 05:05:34 PM EST
    Spot on.  We are told that the banking system is too big to fail and too big to manage or nationalize.  All that really seems to be the case is that the banking system is (as my grandma used to say) "too big for it's britches."

    Seriously, though, the banking system's two basic jobs are to give us a safe place to store our money and to provide loans that allow people and businesses to amortize their expenses.  The first function is almost entirely underwritten by the FDIC and the credit crisis is caused because the banks are not doing the latter (ironically, because they lent so poorly for the past several years).  So what is there in the private banking system that we can't live without right now? (And don't say toasters, because they haven't given those away for decades.)


    If a bank is too big to fail... (none / 0) (#88)
    by lambert on Sun Mar 08, 2009 at 05:39:30 PM EST
    ... it's too big.

    What a capitalist thing to say lambert!!!! (none / 0) (#90)
    by Militarytracy on Sun Mar 08, 2009 at 05:49:20 PM EST
    And? (5.00 / 1) (#98)
    by lambert on Sun Mar 08, 2009 at 06:15:04 PM EST
    I don't support oligarchies. I don't see an alternatives to a capitalism that's regulated -- the alternatives haven't played out well.

    In a sane world, I'd be slightly to the left of center. In this world. I'm a raving and extremely shrill leftist. So it goes.


    Sheila Bair (none / 0) (#121)
    by caseyOR on Sun Mar 08, 2009 at 09:36:11 PM EST
    I just watched the 60 Minutes segment on the FDIC, and how it works. Scott Pelley talked with Bair. Although she declined to comment on specific institutions, she did say that Congress needs to take a long, hard look at this whole "too big to fail" nonsense, and write some laws that eliminate these mega-institutions. Bair said that there should never again be any financial institution that is so big that its failure would wreak havoc on the entire economy.

    Sheila Bair is the only financial sector government official that I trust. Geithner and Bernancke? Would not trust them as far as I could throw them. They never give a straight answer. Bair does. I've never seen her dance around a question.

    I've read that the boys don't like her. Just makes me like her more.



    i Like Her As Well But... (none / 0) (#124)
    by santarita on Sun Mar 08, 2009 at 09:51:16 PM EST
    would be skeptical of her simply because skepticism these days is healthy.

    I agree, skepticism (none / 0) (#126)
    by caseyOR on Sun Mar 08, 2009 at 10:04:20 PM EST
    is necessary these days.

    We have done nationalization (none / 0) (#6)
    by lambert on Sun Mar 08, 2009 at 12:10:26 PM EST
    We just don't use the word. See Yves.

    She Makes Some Good Points... (3.00 / 1) (#34)
    by santarita on Sun Mar 08, 2009 at 01:26:37 PM EST
    but she is unnecessarily shrill.  And it really matters how "nationalization" is done because it could result in the domino effect.  If the government were to nationalize a large bank for a long period of time, it would certainly hurt the competition - what bank can compete against a government owned bank that can tap into almost unlimited resources.

    And her talking about Bain, McKinsiey and BCG helping out is kind of funny - talk about robber barons.


    Unnecessarily shrill? (5.00 / 3) (#36)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:28:48 PM EST
    Did you really write those words? sheesh.

    You are right... (3.00 / 1) (#47)
    by santarita on Sun Mar 08, 2009 at 01:42:15 PM EST
    strident would be a much better word.

    Haw. "Unncessarily shrill" (5.00 / 2) (#84)
    by lambert on Sun Mar 08, 2009 at 05:32:46 PM EST
    The Shrill One himself, Paul Krugman, indeed honored Yves with that sobriquet.

    Shrill is what the prematurely correct are always called, in the age of the Anti-Cassandra.


    Should It Be the ... (none / 0) (#103)
    by santarita on Sun Mar 08, 2009 at 06:39:35 PM EST
    Age of Cassandra.  Cassandra's curse was to make correct prophecies but have no one believe them.  

    Nationalization is a nuclear option (none / 0) (#39)
    by Politalkix on Sun Mar 08, 2009 at 01:32:16 PM EST
    not without enormous risks, many of which have already been pointed out.

    Meaningless rhetoric (5.00 / 1) (#41)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:35:17 PM EST
    Is receivership a "non-nuclear" option?

    How about owning 80% of AIG? and 36% of Citi (or 51% of Citi)?

    Please, let's have a substantive discussion here.


    Personally, I consider throwing trillions... (5.00 / 1) (#85)
    by lambert on Sun Mar 08, 2009 at 05:34:44 PM EST
    .. of taxpayer dollars at the banksters (and their hedge fund counterparties) with no accountability and no transparency a "nuclear option." YMMV, and, obviously, does.

    As in Krugman is the "Shrill One"? Not (none / 0) (#73)
    by jawbone on Sun Mar 08, 2009 at 03:17:24 PM EST
    bad company for Yves to be keeping.

    FDR practical not radical (none / 0) (#8)
    by Rashomon66 on Sun Mar 08, 2009 at 12:29:58 PM EST
    FDR saved the banks without nationalizing them. You're asking Obama to be more radical than FDR. In fact FDR was practical. He was not a liberal idealogue. He did what he felt would work. [And actually he needed guidance].

    Nationalization might work and might be effective but it's a gamble that many do not want to take.
    Although I will agree in principle that nationalization could be a stop gap measure that is not permanent.

    Obama not practical (5.00 / 3) (#10)
    by Big Tent Democrat on Sun Mar 08, 2009 at 12:33:36 PM EST
    FDR saved the banks. Obama is going to let them die or be saved by massive transfer of taxpayer money to bank stakeholders.

    FDR took action THE DAY he became President, and by the end of the Hundred Days, had put in place a banking regulation scheme.

    Within a Hundred Days, FDR had created the HOLC.

    You think Obama is on a path to solving the financial crisis? If so, I say you should put all your money into Citibank stock.


    exactly. (none / 0) (#114)
    by cpinva on Sun Mar 08, 2009 at 08:23:49 PM EST
    FDR took action THE DAY he became President, and by the end of the Hundred Days, had put in place a banking regulation scheme.

    and he had an intrasigent republican block in congress to deal with as well. he, and his advisors, had mapped out a plan, before he was inaugurated, to deal with the situation.

    again, obama is nearly half-way through his first 100 days, without having accomplished much substantively, with regards to the banks or economy. the stimulus bill may or may not get things moving on the employment/consumer front, but the bank situation has just got to be dealt with.

    now is also the time to legislate tighter controls on derivatives; that was the second prong of FDR's plan, fix the mess, and make sure it didn't happen again.

    unfortunately, the bush administration and republican dominated congress spent a good 6 years dismantling what FDR helped build. the disaster the financial industry has created should give obama more than enough political cover to enact controlling legislation.


    Actually (5.00 / 2) (#115)
    by Steve M on Sun Mar 08, 2009 at 08:29:15 PM EST
    I disagree with your view of history.  By the time Roosevelt took office, there was a broad political consensus in favor of action.  I believe the Emergency Banking Act, FDR's first major piece of legislation, passed by acclamation.  The New Deal became controversial later, of course, but I don't believe there was significant Republican opposition to the initial set of bold steps.

    In this regard, Obama has a tougher political landscape to deal with.  In 1933, everyone agreed that it was basically the end of the world.  Today, there's actually people suggesting "do nothing!" "spending freeze!" and the like.


    How is keeping zombie banks alive... (5.00 / 2) (#86)
    by lambert on Sun Mar 08, 2009 at 05:35:31 PM EST
    ... "practical"? It's just a theft of our money.

    Just curious, how do you understand the FDIC? (none / 0) (#9)
    by andgarden on Sun Mar 08, 2009 at 12:31:28 PM EST
    I hate that - Politalkix (none / 0) (#35)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:27:24 PM EST
    you decide that your view is the "voice of reason."

    Please stop doing that. No one has claimed that santarita is not a "voice of reaosn" even if we disagree with her. But it only takes one non-voice of reason" to ruin a good discussion.

    I ma deleting your comment for that.

    OK, BTD (5.00 / 1) (#44)
    by Politalkix on Sun Mar 08, 2009 at 01:38:56 PM EST
    You have a valid point there. Point well taken...

    Thank you (5.00 / 1) (#54)
    by Big Tent Democrat on Sun Mar 08, 2009 at 01:47:16 PM EST
    I hold a firm view on this but I like the discussion.

    Stevie and santarita have been invaluable commenters on this issue though I think they totally disagree with me.


    Thanks for the compliment... (5.00 / 1) (#56)
    by santarita on Sun Mar 08, 2009 at 01:50:24 PM EST
    I don't think we totally disagree.  I think our main disagreement is on timing and how to get there. But I think at the end of this we will not have Citi or Bank of America as we know them now.

    I'm such a contrarian that I thought about (5.00 / 2) (#63)
    by steviez314 on Sun Mar 08, 2009 at 02:11:52 PM EST
    disagreeing with you that I disagree with you, but I started getting confused.

    Is this an unquestionable presumption? (none / 0) (#69)
    by KeysDan on Sun Mar 08, 2009 at 02:41:22 PM EST
    "...presumably, no one wants to nationalize all the banks, thousands of which are healthy."--Blinder.  Could not the entire banking system, be placed under a new type of temporary government control, with the treatment application dependent upon  evaluation of its health? The government need not have title to have ownership.

    Or why not exercise,,, (none / 0) (#71)
    by santarita on Sun Mar 08, 2009 at 03:05:10 PM EST
    the supervisory powers that the government already has?  The government has a lot of tools at its disposal.

    There are thousands of healthy banks (none / 0) (#87)
    by lambert on Sun Mar 08, 2009 at 05:38:54 PM EST
    And especially healthy local credit unions.

    The problem is concentrated in the largest banks -- the ones who inflated the bubble and now want us to bail them out.

    Unfortunately,  the bad (and fraudulent -- see William Black) decisions were concentrated in the biggest banks, which also have the biggest clout in the Village, and are using it to avoid the consequences of their actions, or, rather, to shift the losses to us, having already pockted the profits.


    Temporary nationalization (none / 0) (#70)
    by Wile ECoyote on Sun Mar 08, 2009 at 02:47:17 PM EST
    Yep, congress is all about giving up power the gov't has.

    Heh (5.00 / 1) (#72)
    by Steve M on Sun Mar 08, 2009 at 03:05:29 PM EST
    Which is why, of course, the FDIC ends up keeping all of those banks.