The Cactus Bail-Out Plan: Cheaper, Better, Faster
One of the goals of Paulson’s Bad Joke seems to be to deal with “counterparty risk.” That is, if Bank A can’t find a greater fool to buy its garbage, it will have trouble paying back Bank B. It would be cheaper to simply tell Bank B to collect what it can from Bank A’s bankruptcy proceedings, and cut them a check for what’s left to eliminate the counterparty risk. Whether helping Bank B makes any sense or not, at least this plan would cost the taxpayer much less, as it wouldn’t include the expense of keeping Bank A afloat. So if we’re going to have a costly bail-out, let’s at least focus only on bailing out the “good banks” and let the “bad banks” die.
The problem with the approach I laid out is that the process can drag on. But fortunately, if we’ve learned anything from the Bush administration, its that rushing along at breakneck speed isn’t a problem if you claim there’s some sort of national emergency. So… pass the “Banking Patriot Act.” Any bank that is in trouble must liquidate its assets immediately and pay back its creditors to the best of its ability. The government would use its $700 billion to compensate the good banks for their counterparty losses. Voila – no counterparty risk, no uncertainty in the banking system, no rewarding the bad banks, and the system operates as it should.
But… what makes the bad banks go along with this plan? Well, its simple, really. A provision of the “Banking Patriot Act” allows the government to view any communications by anyone at the bank to see if they’re in trouble. And if any bank turns out to be in trouble but did not go along with the “liquidate immediately” order – well, its executives would all be declared enemy bankers, and would be interned at Gitmo. And there would be waterboarding to find out if those enemy bankers know of other enemy bankers.
(rdan….financial terrorism as a business model?)