Later On

A blog written for those whose interests more or less match mine.

How to handle the banks

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I personally would slap the hell out of them, and they could forget about bonuses, which they are now calling "retention pay," as though there were any jobs for this lot of incompetents. At any rate, a very good article on the choices by Simon Johnson at TPM Café. It begins:

When you cut through the technical details and the marketing distractions, sorting out the US banking fiasco comes down to one, and only one, question. How tough are you willing to be on the people who control the country’s large banks?

One option is to be gentle with them and adopt only ideas that they pre-approve. This route involves complicated schemes to purchase, lend against, or otherwise "wash" toxic assets out of the banks using taxpayer subsidies. This will be expensive (for the taxpayer), messy politically, and – most likely – will not work, in the sense of restoring the banking system to something close to its normal mode of functioning; check with Hank Paulson for details.

Alternatively, you can be tough and take steps towards really assessing which banks are insolvent when you use market prices to value their assets. These banks can be taken over in a scaled-up FDIC-type procedure (no golden parachutes!), and controlling stakes in fully recapitalized banks can be sold off immediately to new private owners. The new private owners can handle, under proper anti-trust supervision, the break up the banks. This approach will be cheaper for the taxpayer (but nothing is free at this stage), easier to explain to the electorate and their representatives, and it will work – this is in fact the standard prescription because it always works. But it will not make powerful bankers happy.

So which way is the Obama Administration heading? …

Continue reading.

Written by LeisureGuy

11 February 2009 at 11:34 am

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