Essentially, they say, we have to bite the bullet: it might be unpleasant, but it's necessary.

From Felix Salmon:

"Is the Geithner Plan the Least-Worst Option?

Matthew Richardson and Nouriel Roubini have a good and concise view of all the problems with the Geithner bank bailout plan:

Let's not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly...
There is something a little worrying about circumventing the legislative process on such a huge investment...
No one knows what the loans or securities are worth. Competing investors will help solve this by promoting price discovery. But be careful what you wish for. We might not like the answers...
We have to anticipate the likelihood that some banks will resist selling their loans and securities...
We may then have to start asking, "Why keep insolvent banks afloat?" And having asked that, we will have to search for ways to manage the ensuing systemic risk.
Either way, once the plan is fully implemented, we will be entering a new phase of the financial crisis. The water is choppy. Let's hope we are strong swimmers.

The amazing thing is that this laundry list of problems appears under the headline "Give credit to Timothy Geithner's new toxic asset plan": Richardson and Roubini actually consider themselves supporters of the scheme. Essentially, they say, we have to bite the bullet: it might be unpleasant, but it's necessary.

I'm beginning to detect something of a pattern here: there are no really full-throated supporters of this plan outside the Administration; there's no one who thinks it likely that nothing will go wrong. Instead, there is a group of people who have reasonably concluded that this is the least-worst option, in light of political constraints: essentially, it's better than nothing, which is the only realistic alternative given that Congress is in no mood to pass anything bailing out banks right now.

I am though worried about the banks' participation in this scheme -- especially the Big Four. In order for this to have a chance of succeeding, they all need to participate, but they can't overtly or covertly cooperate. I hope that Treasury is hiring some serious auction-design and game theory experts right now, because there does seem to be a large number of ways in which this plan can be gamed, especially when the banks have shown no particular enthusiasm for participating."

Me:

"Essentially, they say, we have to bite the bullet: it might be unpleasant, but it's necessary"

That's where I ended up. By the way, check this out from Business Week:

http://www.businessweek.com/print/bwdaily/dnflash/content/mar2009/db20090323_101082.htm

"Pressure from Bank Regulators

Then again, they may not have much choice. The federal government owns significant stakes in most of the big banks, giving Administration officials and key members of Congress a toehold to pressure the banks. And bank regulators hold considerable sway over the assets that banks hold, and sell, even in ordinary times.

Indeed, asked if the FDIC and banking regulators will pressure banks to sell assets under the program, Bair was vague, but suggested they would. "There will be a consultative process with the [banking] supervisors," Bair said, "and yes, this program will be among the tools available" to improve bank finances.

Administration officials said banks may actually be willing to take a hit by selling the assets at a lower price if it lets them clean up their balance sheets and get access to the now-wary capital markets again. "This will make it easier for them to raise private capital," Geithner said. "

I have to give them credit for working on being able to seize big banks and other financial firms if insolvent, working on Fraud, and moving on QE. It's getting better.

By DonthelibertarianDemocrat Posted: Mar 25 2009 3:25pm ET