It may a horrible, terrible, no good, rotten and dirty plan but it’s the best we have for now…



Dave is a part-time blogger that writes about whatever suits him at the time.

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4 Responses

  1. Avatar E.D. Kain says:

    What’s to stop banks from just buying each others bad assets with Federal guarantees? I mean, I guess it simply strikes me as odd to push the same poison back through the same system in different hands with tax payers taking all the risk (or most of it)….?

    So say I’m Citi and I want to go buy some toxic assets from Bank of America do I get government help now to do it? And don’t my books look even worse for wear when I’m done? And isn’t it just still the tax-payer on the hook?Report

  2. Avatar Dave says:

    There is no incentive for the banks to buy each other’s crap and I don’t think they have the equity to be doing that anyway. However, as I updated above to respond to your question, there could be incentive for banks to bid on their own assets (probably via some sort of partnership or special purpose entity where they contribute the bulk of the equity).

    It shouldn’t be difficult for the FDIC to determine the capital sources for each of these transactions. If XYZ entity is the bidder, XYZ should disclose its sources of capital all the way down to the individuals or entities.Report

  3. Avatar Rortybomb says:

    “However, as we move forward and rewrite the rules governing financial markets, simpler, smaller and less dangerous is something worthwhile to consider…Second, no one is expecting a return to the original market conditions he speaks of, at least no one I know that understands this business. ”

    1) If this plan works, why would we rewrite the banking rules? Isn’t the underlining assumption that the banks, as is, are fine except for this one minor problem off to the side? What we are doing here isn’t showing off how much we have the banking industry over a barrel but how much they have us over one.

    2) Re: nationalization. I understand not liking the AIG flap (though I did), but are you disgusted when FDIC takes a bank into receivership? The public noticing that it was having a large transfer from it’s taxes to connected financial insiders and being upset with that doesn’t colors my impression of a citi takeover.

    3) I’m so glad I didn’t push to go work at the FDIC – those guys are going to get left holding the bag on this giveaway.

    4) Brad Delong makes an excellent case that with the taxpayer subsidy and the long-horizons and risk neutrality of the government, the mortgages may be worth something. But as ED Kain notes, mid-sized banks that made responsible choices also have those horizons, as does Warren Buffet (famously). The fact that nobody is looking to pay what is need is worrisome to me.

    * Click through to my blog; that email that is circulating around started as a blog post I linked through to – it is an blogger sending an email to the FDIC.Report

  4. Avatar Rortybomb says:

    Sorry that was long. Last note. There are unexpected consequences of forming public-private hybrid monsters, and giving banks the impression that they are too-big-to-fail, and we are already seeing this. See how AIG is using the government’s credit card to fix prices

    And then realize we are going to do the same thing, on a larger scale, with a handful of the largest, globalized banks. We don’t know how they are already using their implicit taxpayer bonus to expand and crush their competition, but I know they have their best minds on it.Report