The management of any systematically important bank that has to be
rescued by the state should be disbarred, as a matter of course, from
further work in the financial industry. As substantial fine should also be
levied … Managers are, in an important sense, public servants. If they
abuse that trust, they should be treated accordingly.

(see also Jump You Fuckers!

Zamfir, yes – one paradigm we should shift is the doctrine of EU-bashing (but the Dutch had the advantage of embezzling a lot of the billions from the Belgians) – now guess where I’m from ;-)

How many Wall St elites are still in charge, despite having to be bailed out? AIG is an exception, and it seems to function chiefly as a money laundering device, to send over $140 billion to ‘counterparties’.

If you take in account that the US economy is 20 times larger than the Dutch economy, I am surprised at the ease with which these plans happened here, compared to the trouble it takes in the US.

Whether the Dutch are too easy or the Americans are too careful is beyond me to judge, but in this respect Europe is clearly not waiting for the American example.

Barry, that’s simply not true. Denying that something happened and that that something had an impact on the leadership under which it happened is not very helpful. Even if your frustration is correct that not enough has happened to those used to calling the shots, my point was that some sense of quick revenge is not necessarily helpful for anybody.

The overpayment risk seems rather minimal—take Krugman’s back of the envelope figures:

http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/

In his example, the expected value is 100, but with the non-recourse loans, the bidders are willing to bid 130 of which 20 is their own money. Which means the government is in for 110 instead of the 100. In the current scheme of things—BFD. Given that I think the Geithner plan is more than 10% more likely to work than straight nationalization, so I prefer the Geithner plan even after taking Krugman’s point into account.

You realize, of course, that if the plan fails then the government will have to nationalize those insolvent banks. We will have overpaid for the RMBS, lost the money we put out in non-recourse loans and we will have to cover large chunks of the nationalized bank losses.

The only upside is that Geithner is relatively constrained in how much he can dump into this plan. There is little TARP money left and Congress won’t be giving him any more after the AIG bonus issue.

To me, it seems clear that the the toxic assets have no underlying ‘true’ worth that can be discovered by either an auction of committees of government experts. By that I mean, the ultimate value of those assets will be determined much more by the course of the economic downturn and recovery than by characteristics of the securities themselves. The value of the securities will depend on default rates and housing prices which, in turn, will depend on economic growth and unemployment rates. So to price these securities is to make a bet on the timing and strength of economic recovery. And, of course, there’s a feedback cycle—the timing and strength of economic recovery depends on the success in handling toxic assets. So good luck putting a price on all that.

But in this case, I don’t think it makes too much sense to worry about whether some private equity funds realize too much profit, since that’ll be the issue only in the case of economic recovery which meant the plan worked. And if it fails and government is stuck with the losses? Well at least the government won’t be stuck with all the losses (which it would have been in a nationalization approach).

Facing the problem is particularly difficult for President Obama (though not as bad as it would have been for a President McCain, Republicans are completely detached from reality). Obama distinguished himself from his Democratic rivals with a particular reliance on market based solutions. Obama’s opponents in the Democratic party argued that market solutions to deep problems like health care and income inequality had failed, and that it was time for government to reassert itself. We will see how deep the crisis must get to force Obama to abandon his core economic principle and recognize that the big private capital markets will have to be restructured before the U.S. recovers.

I’d put it more as if Saddam and the Ba’ath Party had been left in charge, subsidized heavily, with no more supervision than they could dodge on even an off day.