Here’s an interesting article from Financial Week that suggests existing law would allow for a faster fix of the insolvent banking system:
The law, the Federal Deposit Insurance Corporation Improvement Act, was signed into law in 1991. In an interview with Financial Week, Bob Eisenbeis, a former research director of the Federal Reserve Bank of Atlanta, said the FDICIA contains more than enough tools for regulators to help stem the current financial crisis.
If regulators had applied FDICIA’s provisions once the solvency of major banks was first called into question, Mr. Eisenbeis said, many would already have been taken over by Uncle Sam.
That would mean that their good assets would have been separated from their bad and sold off to healthy institutions or other investors.
This, he claims, would have gone a long way toward solving the credit crisis.
The article quotes a blog post made by at The Big Picture by a financial consultant named Christopher Whalen:
“When the Q1 numbers for the financials come out, the children’s hour in DC will end,” Mr. Whalen wrote in a note posted on the blog, The Big Picture. “The markets will react and Washington will finally be forced to have an adult conversation with the global community as to how much we haircut the bondholders.”
Yes, reading and discussing economic and financial stuff gets old, but to regular citizens it sure appears we are still headed off a cliff in many ways. The stimulus plan is a start, of course, but fixing the financial system is now paramount.
If I understand all this, the argument is that the Paulson-Geithner approach has us in a holding pattern. If existing law can be applied as Eisenbeis claims, it would seem to warrant consideration so that we can get on with things. Whatever name people wish to use can be affixed to the action–temporary nationalization, receivership, or my personal suggestion of “restructuring awards,” we need to just do it. The longer uncertainty prevails, the worse things will get.
Props to The Mortgage Lender Implode-O-Meter
Keep up the good work. It’s important.
@2
You should be thanking Financial Week.
Well, the problem is whether there is enough money available in the FDIC to do that. The system had always been based upon the assumption that most banks were solid and the FDIC only had to deal with a few bad eggs. It’s strategy for doing that without actually spending any federal money was to seize it only after another bank was found to immediatly take over it’s assetts, thereby making for a smooth transition and keeping confidence in the banking system generally. But if the FDIC has to seize a large number of banks and pay out on it’s deposit insurance, then there simply isn’t enough money in the system to do that.
Right now, a thorough look at the banking system might reveal that there are very few banks which don’t meet the current reserve requirements, in part because their loan portfollios aren’t nearly as valuable as the book values seem to indicate. As the economy worsens, that situation will also worsen.
Of course, the whole system might still have been “fixable” a couple of years ago when the problems of the real estate loans were first becoming public knowledge. But the Bush administration pretended there wasn’t really a problem, touted a voluntary program for banks to help give customers “information” on how to keep their loans out of foreclosure, and then seemed surprised when the house of cards collapsed around them.
Except for a couple of slips early last fall, the FDIC has been rather crafty by seizing banks over the weekend, and having other institutions ready and waiting to absorb the failed ones. Therefore, so far it’s all been pretty much a transparent process to depositors–their ATM cards keep working and their local branches are open for business first thing Monday morning with assurances that their deposits are safe.
If the crisis continues to deepen, it’s going to be more difficult to maintain the illusion of normalcy. There’ll be fewer and fewer banks still in good enough shape to digest other insolvent ones and the FDIC will have to start picking up the tab for big withdrawals. If this leads to a crisis in confidence, it’s a real problem because the FDIC doesn’t have even a fraction of the money it would need to cover all the insured deposits if there’s a major run on the banks.
@3
“Right now, a thorough look at the banking system might reveal that there are very few banks which don’t meet the current reserve requirements, in part because their loan portfollios aren’t nearly as valuable as the book values seem to indicate. As the economy worsens, that situation will also worsen.”
True, and in 1991 I don’t think “mark to market” was in place.
With regards to –
“That would mean that their good assets would have been separated from their bad and sold off to healthy institutions or other investors.”
2 things,
Either the financial wizards on Wall Street can’t unwind the CDO’s and figure out what the “good” assets are from the “bad”, or they know, and aren’t saying becuase it would create a run on every bank in the US as people rush to get their money out….Because every bank that purchased CDO’s is leveraged beyond solvency.
Dark times.
@2 Every day you post on this blog, you should get on your knees, look heavenward, and thank the Great Mother Rabbit Spirit that Goldy invests the time, effort, and money necessary to make your freeloading on his blog possible.
The big picture no one should forget is that people who bought toxic bonds were victims of massive fraud committed by Wall Street and the banks. Bonds rated AAA were, in fact, worthless crap. The people who got stuck with this misrepresented toilet paper — many of whom are foreigners — will never trust their bond brokers, the banks, Wall Street, or American debt paper again. They will take their business elsewhere. Not satisfied to offshore the jobs of American workers, the financial industry’s greedheads have now succeeded in offshoring their own industry, their own jobs, and our whole fucking economy. They should be prosecuted, sued, stripped of their assets, then stripped of their clothes and hog-tied and made to read the Koran out loud in a dingy dungeon on a hot and steamy Caribbean islet under the glare of relentless burly and surly Marine guards.
Cripes, I border on poetic when I get going! I even do alliteration! Not too shabby for a fucking feral rabbit living in a hole in a public park, if you don’t mind my saying so. >:-D
Right Stuff & 5 said: “Either the financial wizards on Wall Street can’t unwind the CDO’s and figure out what the “good” assets are from the “bad”, or they know, and aren’t saying becuase it would create a run on every bank in the US as people rush to get their money out….Because every bank that purchased CDO’s is leveraged beyond solvency.”
I think just about every bank is deathly afraid of such a real examination. They don’t even want to know what percentage of those debts are still good, and which ones are still bad, because once known, they have obligations to amend their filings with the FDIC, which might trigger a the FDIC closing the bank or a forced sale/merger with another bank – which might be just as bad off, but they simply have avoided looking at it yet.
I ran into this same principle with respect to environmental remediation: property owners would avoid doing anything which might provoke testing of the property because that could invoke remediation requirements and financial responsibility.
The bankers hope that they can stall such an examination until the economy improves, pulling up real estate values with them, to the point that their loan portfolios start too look healthy again. That was the Japanese approach, but that resulted in the “lost decade” of economic growth in the 1990’s.
But that’s not going to happen as long as their is a fundamental uncertainty which runs the gamut of our financial industry. Such an examination and “unwinding” of these securities is, like cleaning an infected wound, the necessary precursor of a recovery.
Think California is in trouble? Try Florida:
http://thesunnews.typepad.com/.....cover.html
Oh just let the free market take its course.. Yeah sure….
RR @ 7: Yep, the Japanese are already pretty pissed off at us. Their banks bought a lot of our worthless paper with the understanding that the federal goverment regulates banks and mortgage lending, and presumed that the bond ratings were likewise overviewed by the federal government. It’s not likely that they are going to buy U.S. investment paper for a very, very long time.
Pretty pictures of the “ownership society” of Florida:
http://link.brightcove.com/ser.....9561519001
Ground zero for the crash of the Bushconomy. As is normal for the Shrub family, Jeb blew the popstand long ago. How “prudent”.
Funny Onion article.
http://www.theonion.com/conten.....=a-section
Troll is really creeped out by dark skin for sure.
The fool keeps going on and on about it. Fear is funny that way.
I heard Kansas is starting to shut down the Kansas government because the Republicans don’t want to pay for Public Education. Typical.
Republicans will bankrupt us to squander a fortune on a occupation in the middle east, but nothing for the neighbor kid next door.
I mean really, if these stupid Republicans keep going like they are, people are going to tar, feather and then run them out on a rail out of office.
Republicanism has degenerated to a bizarre cargo cult. It’s too sick for words and a catastrophe for this country.
@16
Pssst, the Democrats are in power.
Obama is talking right now, ready to sign the stimulus.
Look at Recovery.gov. It’s up now.
The biggest line item is tax cuts. This is what it took to buy 3 Republicans. Any economist worth his salt is saying another trip to the well is inevitable.
The people need to step up and harangue the obstructionists. But with so many Republicans seats on the line in 2010, I think they’d rather die on their silly ideological swords than help people in desperate need.
17 – Pssst. Fool. The minority can stall legislation through filibuster. Republicans are blocking sensible legislation in state governments across the country. Go back to your race baiting.
O==One
B==Big
A==Ass
M==Mistake
A==America
Pssst. idiot @ 20. You just got 288 billion in tax cuts in the “stimulus” package. Aren’t you happy?
@19
Hey, at least I don’t claim to be a “progressive” blogger, yet once a week drive past dozens of black-patronized bars to get to a bar in an upscale white neighborhood.
“If I understand all this, the argument is that the Paulson-Geithner approach has us in a holding pattern.”
True. Summers and Geithner should be run out of D.C. They are only making a bad situation worse because they share a lot of the same world view as the former “Masters of the Universe”.
Also: Visit the blog “Naked Capitalism” for a lot of good discussion and many links re this unfolding disaster.
Love it when Republicans are exposed to be liars:
http://yglesias.thinkprogress......_liars.php
As usual the media is not calling out Republicans on their lies.
This what Republicans said about Bill Clinton’s economic plan back in 93:
When are people going to wake up about this party of sociopathic liars?
http://www.congressmatters.com.....13/399/636
22 – Pssst. Moron. AFAIK NONE of the bloggers here organized the Drinking Liberally at the Montlake Ale House. That was Nicholas Beaudrot’s doing. Race bait him if you’d like.
@26
YLB, all I did was state a fact. Why do facts anger you?
27 – Pssst.. Not angry. I’m laughing at you!
Changing the subject (Troll is tooo boring)..
No one brings the crazy like Michelle Bachmann:
http://www.washingtonmonthly.c.....016922.php
Can any right wing idiot out there find the 5 BILLION dollars for ACORN in the Recovery Act?
Moron@25: And Clinton lost the House and Senate on those proposals.
Bristol Palin, bless her heart, said abstinence isn’t “realistic”.
Get that? NOT REAListic. One more time..
NOT R E A L istic. You know as in a relationship with REALITY????
Isn’t it strange that abstinence was the policy of the Chimp administration for the last 8 years and abstinence programs that didn’t have a prayer of working were federally funded?
Where did Bristol get this strange idea that abstinence is not realistic? Certainly not from her parents.
Oh. The moron @ 29 just showed up. He’ll probably say the “librul media” in Wasilla.
You want to find something funny? Just go do a search on Youtube on the name of one of the financial “geniuses” on MSNBC or one of its ilk, and watch all the video clips of those turkeys contradicting themselves over and over again over the last year and a half.
There’s a particularly interesting one from last May or thereabouts in which Jim Cramer (you know, the guy with the bald head and the bad neckties) experiences a short-lived moment of clarity and spends ten minutes screaming at the top of his lungs (and I’m not exaggerating) about how everything was about to fall apart. A week later (possibly after a few “attitude adjustment” sessions with his bosses) he was back to mouthing platitudes to the effect that everything was going to be just hunky dory.
YLB @ 24: I think it was yesterday that Rush Limbaugh was having a fit about how the legislation was being posted online as a .pdf file, at which point he charged that it was all part of a plot by the Democrats so it couldn’t be ‘searchable” like a text file.
The problem is, Rush doesn’t seem to know how to use Adobe Acrobat. You can click on the “binocular” icon and do a search of characters within the document. If you don’t have a binoculars icon in your toolbar, you can add it by going to the “customize toolbar” function.
Of course, don’t expect Rush to admit he was wrong. By tomorrow he’ll be making up other stuff which is equally wrong.
@28 Well, I can see how it bounced around in the wing-nut echo chamber 5 billion times. Acorn is just another wing-nut boogyman and a good one at that, as wing-nuts like to express their issues with whines or wails consisting of one word (or less). It keeps it simple for the single digit IQ types like Cynical and Marvin.
32 – Limbaugh symbolizes everything that’s wrong with this country. He even lives in Florida which is ground zero of the implosion of the Bush catastrophe.
I generally tune him out but if he keeps on doing what he’s doing I have to believe it will only make things worse for the Republicans.
We’ll see.
Pedophile@28:
“For a further additional amount for ‘Community Development Fund,’ $4,190,000,000, to be used for neighborhood stabilization activities related to emergency assistance for the redevelopment of abandoned and foreclosed homes as authorized under division B, title III of the Housing and Economic Recovery Act of 2008 (Public Law 110–289), of which—
“(1) not less than $3,440,000,000 shall be allocated by a competition for which eligible entities shall be States, units of general local government, and nonprofit entities or consortia of nonprofit entities[.]”
“(2) up to $750,000,000 shall be awarded by competition to nonprofit entities or consortia of nonprofit entities to provide community stabilization assistance […]”
Did ACORN spend these funds on housing before?
Compian and Ramos were released today for shooting a drug scumbag with 800 pounds of marijuana in the butt. Charged with deprivation of a drug smuggler’s rights. BTW they later caught the scumbag and he got 9.5 years.
By the way Pedophile@28, you could have found this too if you stopped drinking the moronic left-wing tit kook-aid.
@29: And the economy under clinton was 10X better than under Bush AND Clinton was the last (and only) President since REagan to leave a budget surplus – compared to the record budget deficit AND recession/depression of Bush.
Guess those republicans were WRONG again. How many times can the stupid republicans be wrong and still not realize it? Must we repeat the same stupid economic policies that got us into this mess – the trickle down tax cuts for the rich that did NOTHING? The trillions wasted on Iraq? The government give-aways to the defense companies, to Haliburton and to Blackwater? What did we get from that? NOTHING.
I gotta run. Is the moron @ 35 actually saying that ACORN is going to get 5 billion dollars?
Wouldn’t surprise me. He’s too freaking crazy like Bachmann.
Yeah, Dr NotRight, was it the Congress who enabled the legislative process or not in the 90s? Who wrote the yearly federal budgets Dr NotRight?
Please tell us Dr Constitution Ignorant.
35 – and I’m sure all these fools would support nothing but tax cuts as a fix for our current woes:
http://republicanoffenders.com/Pedophiles.html
No Bozo@38 it’s 4.19 Billion. I show the proof and HAs clueless idiot ignores the facts.
Moron@40: That’s why I called you a Pedophile rerun. I wanted to see you rerun your second favrit link and just like Pavlov’s dog you did.
So flipping predictable… An idiot savant.
Steve @ 33 – The fool @ 41 is apparently a single digit moron as well.
42 – http://www.republicansexoffenders.com/
@35 Acorn Housing Corporation? It’s only an allied organization. They don’t register voters.
http://www.acorn.org/index.php?id=12375
Republicans would like everybody to believe that 4.19 billion will go to Acorn’s voter registration efforts. Wrong. They can’t prove their accusations. They only demonize, fling mud and hope some will stick. It doesn’t.
Geez, if only Puddy cared as much where the faith-based dollars are going. Post a link for that one, Puddy. We’ll see how if you really care about accountability or if you’re just being partisan in your concern.
45 – The claim by the moronic Republicans (like Stupes) makes no sense at all. ACORN isn’t the only game in town for whatever the money is being purposed.
But Republicans being Republicans they’ll keep beating the drums of fear to motivate their tired base.
That Bachmann is a total nut case. She just makes shit up as she goes. She’s shameless.
@46 “She’s shameless”
Of course. She’s a Republican.
See our latest comment on the banks: ‘To Big to Bail: Lehman Brothers is the Model for Fixing the Zombie Banks’, February 18, 2009
Best,
RC Whalen