April 20, 2010
Whatever You Do, Uncle, Just Don’t Ream Us

Here is Ezra Klein, the Great Explicator, explaining why Br’er Mitch is hollering so hard for Br’er Barack not to throw him in dat brier patch:

A bank is judged failing. The FDIC submits a plan for the bank’s liquidation — which includes firing management, wiping out shareholders, handing losses to creditors, and selling off the firm — and gets it approved by the Treasury secretary. Then the FDIC takes over the banks. The $50 billion fund is used to keep the lights on while all this happens. It’s there to prevent taxpayers from having to foot the bill for the chaos that will occur between when we recognize a bank is failing and when we shut it down.

Whatever you want to call this, it isn’t a bailout. It’s the death of the company. And the fund is way of forcing too-big-to-fail banks to pay for the execution. But stung by Republican criticisms, the administration is telling Democrats to let the fund go. And they’re not all that unhappy to see it die. “The fund isn’t a priority for the Obama administration,” reported Business Week, “which instead proposed having the financial industry repay the government for the cost of disassembling a failed firm, an approach preferred by the industry.”

So let’s just be clear: The alternative to the liquidation fund is Wall Street’s preference. That should tell you pretty much all you need to know about whether the industry really views this as a bailout.


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Posted by Jerome Doolittle at April 20, 2010 12:06 PM
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