> Doug wrote:
>
>> I'm all for that. But that's not the issue right now. The issue right
>> now is the potential collapse of the banking system. This is a time
>> scale of weeks vs. one of years.
>
> Doug - Why do you find the Paulson/TARP plan so appealing, or necessary?
> Maybe you can persuade me it would work.
>
> The fallback seems to be that the FDIC seizes and sell institutions in
> line with settled procedure. JP Morgan Chase and Citigroup have now
> bought the brand, franchise and deposits of Washington Mutual and
> Wachovia for bargain prices (while the FDIC get stuck with the cruddy
> loans).
=========================================
I think that's the point. Private capital, as in the case of JPMC and Citi,
are only prepared to come off the sidelines on the assurance the state will
be there to absorb the "cruddy loans" weighing down the industry.
The deep-pocketed institutions have been and are effectively engaging in a capital strike, holding workers and small businesses hostage to ratchet up the pressure on governments to inject capital and to make a market for the mass of opaque and illiquid instruments on the books of their potential takeover targets. The recent moves by Berkshire, JPMC, Citi, and Wells Fargo coincide with the introduction of the Paulson plan.
We're probably only at the beginning of this vast deleveraging/bailout/restructuring process which could work - in the absence of unintended consequences, that is.