Thursday, February 05, 2009
The Bailout and Nationalization
I am opposed to releasing the TARP money for any more bank bailouts. What we appear to be doing is propping up insolvent banks, which remain insolvent, until the situation becomes sufficiently dire again that they need more taxpayer funds. This seems like a process without an end. Some of these banks, such as a CitiGroup, actually have good assets but are loathe to part with them. What rational CEO would? Given the choice between selling off the good assets to cover the losses on your core business (effectively being the CEO of the rump of what's left over) and or sitting pat, waiting for a fresh (and seemingly recurring) injection of capital which would you choose? I think the answer is obviously the latter. I think what's necessary is to remove the appearance of a choice. The government can use the TARP money to buy more agency debt or whatever it likes to ensure credit flows and in the meantime let the FDIC do what it does, determine if a bank is insolvent, if so, shut it down, and sell it off in pieces.