> 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 - I have to own up to a lot of sympathy for the majority view of the US House of Reps, however varied the reasons for each vote must be. I think its clear enough the US Treasury/TARP plan is likely to offer little practical assistance to US banks (for reasons canvassed in various other blogs and commentators linked in past LBO posts; but Roubeni, Krugman, Calculated Risk and Naked Capitalism have all been great sources throughout the last two weeks).
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).
The same goes for Santander buying Bradford & Bingley's deposits and network for a steal. Nordic bank now has control of Denmark's Roskilde Bank on similar terms.
And the Treasuries of the US (through the FDIC), Britain, Germany, Netherlands and Belgium are all recapitalising banks as needed. And no doubt they will all be forced to do so many more times.
These processes have the merit of wiping out stock holders, including holders of preference shares and subordinated debt, leaving the financial pain where it deserves to be.
The conventional liquidity interventions of central banks (which expand by the day) will have to do the job of producing a thaw in the interbank market.
Ian