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.
“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