FEBRUARY 17, 2009

While I still may be wrong, at least I am not the only person thinking this way. Why can't we just do the normal thing? I cannot understand why we are making this more complex than it is. There is zero upside to the Zombie Bank mentality that has permeated the Bush and Obama administrations from the beginning. Alex Tabarrok at Marginal Revolution proposes the idea that we simply let the banks go under that would other wise go under without Government support. I mentioned this as a side bar comment in A Better Approach?--part 2  when discussing Paul Romer's approach. He agrees with the "normal" approach although he would also have TARP II money go into starting up new banks. I am not fully sold on the latter, but if combined with the former is acceptable.

We have a procedure in place to do this under the auspices of the FDIC. We do not need new absurdo entities and "private-public" partnerships, all designed to create fake prices. We need to let the banks get recapitalized at new prices and simply start again. The big banks are worth zero already. As a few writers have noted, let the debt holders become the new equity holders. The great irony of the day is that the smaller community regional banks have escaped this mess relatively unscathed. It was the masters of the universe, caught buying, holding and "hedging" junior tranches of CDOs, who ended up demolished.

(posted at 2:50 pm by Mike Rulle)

If a company or any economic entity is losing massive amounts of money, one necessity is to lay off people. The Federal Government, of course, does just the opposite. However, California cannot print money. Their housing lending market started this whole mess so at least their legislature adjourns with no budget as the governor prepares to lay off 10,000. What a absolute travesty that State has become. This may be extreme, and I admit to not doing any research on the matter, but with the exception of police, firefighters, judges, public health officials, and some group to process all these transfer payments, we would barely notice the absence of government. 

(posted at 2:04 pm by Mike Rulle)