Ex Ante Resolution Fund

Unhappy that the administration threw this under the bus to shut up McConnell. Treasury never wanted it, but it was a good idea. Now the FDIC is supposed wait until there's an industry that's experiencing a crisis, and has already suffered losses to a failed financial firm, before trying to recoup losses from resolving the failed firm. Nice plan.

Economics of Contempt says that the Street's pressure against the resolution fund stems, in part, the fact that "the majority of the $50 billion would come directly out of the major dealer banks' profits over the next few years." And he's right. But there's something else worth noting here. A big reason, I would say the primary reason, is that by killing the pre-funding mechanism, the financial firms pretty much ensure that the resolution mechanism will be less likely to be utilized. FDIC can't take apart a company if it has no cash to do it - this isn't like an ordinary bank failure where another bank will buy the failed company whole. If the FDIC requires a loan from Treasury to do the resolution, it adds one more layer of dithering before the resolution can happen, not to mention the endless debate about whether the country can afford it in the midst of a deepening financial crisis. (Right, this isn't going to be happening during boom times, after all). More debate = lower probability of action = greater likelihood of a regular bailout.

The point of the whole exercise is to take crappy firms apart, to fire management, to give a haircut to the bondholders, etc. But by eliminating the ex-ante resolution fund, Congress makes it all the more likely that the Fed and Treasury will do the math, and maybe even cook the books to make it look cheaper to keep the failing firm afloat than to take it apart. After all, exigent circumstances and all that.

More Hasen

Well, the evidence is now mostly in, and it looks like some of it, maybe most of it, was that anti-american thing. Happy to admit when I'm wrong. But note, I'm happy to change my belief based on the available evidence. Still not wrong to believe what the evidence supports... Just sayin'.

Non-random thoughts about Hasan

In response to Matt Yglesias's post on Hasan's Powerpoint presentation, I wrote:

You know, in the pre-9-11 days we had a phrase for what Hasan did. It was called “going Postal.” This guy could be viewed a an islamic terrorist, or as a disgruntled worker. (I suppose there are other ways too, but let’s look a just these two for a moment).

One of these ways of viewing him fits the worldviews of people who want permanent religious global war (neo-conservatives, right bloggers, and real live islamo-fascists) and the other fits the worldview of, well, me. Which is the right interpretation? Which one is supported by available evidence?

This is a guy who reprotedly suffered discrimination at the hands of his co-workers. Supervisors were unhappy with his work at Walter Reed. His PowerPoint file demonstrates poor communication skills, which are certainly a liability for someone who is supposed to faciliate communication so that soldiers can get through emotional crises. He improved a bit at Walter Reed, but was shipped out of that safe environment into a less safe one so that he wouldn’t be a blight on WR Army Hospital. Once at Fort Hood he received orders to deploy overseas.

This looks like the sort of profile we might expect from someone who is disaffected at work. He was a failure at his chosen profession, unable to relate to his coworkers, harassed by them (which would undercut his ability to feel the necessary empathy to do his job well), all of which makes him a prime candidate for going Postal. If his skin were lighter and his name Christian sounding, he would be labeled a disgruntled worker.

This is not to say that his religion played no role. It may very well have made him feel secure in his belief that he would be rewarded in the afterlife. Heaven knows that plenty of Christians have killed with that same belief. If the evidence ultimately shows that Hassan was in the thrall of some Islamic extremist and was acting in furtherance of a big anti-american conspiracy, I’m happy to change my belief as to what happened. But until then, I choose to believe what the evidence supports — that Hasan went Postal.

(note: I understand that a more thorough treatment would require an analysis of the terms “terrorism” and “going Postal” because, well, one is horribly ambiguous and the other is kind of offensive to the many US Postal service employees and their supporters who are not shooting each other up. See Greenwald for more on this.)

Ad Libbing, Ad hoc

I appreciate that nobody knows what the hell they're doing about the economic crisis, but if their intention is to perpetuate a leadership vacuum, they should just kindly get out of the way instead. I mean I can understand (but not condone) wanting to hide out for the next eight weeks, kicking the can down the road for someone else to deal with, but this see-saw crap is starting to annoy me. At the very least, he should start keeping his mouth shut so it's not so obvious that he's ad-libbing this whole thing. When the crisis is, in significant part, one of confidence, broadcasting that you're making it up as you go along just seems like the wrong move.

"Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering asking for the money."

http://www.bloomberg.com

McCain is no leader on financial reform

John McCain has announced his intention to, if elected, order Treasury to fully insure deposits at our nations banks. His announcement demonstrates his inability to lead this country out if its current banking crisis.

First, he has shown a lack of understanding of the regulatory structure of the US banking system. Treasury is not the agency that insures deposits. The FDIC is. The FDIC is an independent agency, not a division of Treasury (unlike, say, the OCC), and not dependent on taxpayer funding. By choosing the wrong agency to insure deposits, JM has demonstrated his unfitness to manage this crisis.

Second, his proposal is not novel. It is, in fact, already being implemented. Earlier today, the FDIC, in conjuction with Treasury and the Federal Reserve, announced the Temproary Liquidity Guarantee Program. Under the plan, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails. In addition, any participating depository institution will be able to provide full deposit insurance coverage for non-interest bearing deposit transaction accounts, regardless of dollar amount. This new, temporary guarantee—which expires at the end of 2009—will help stabilize these accounts.

What is important about this? Well, it shows that JM has got no legitimate claim to leadership on this issue. Fully insuring deposits is not novel--it is a mere echo of what the European Banks announced over the last two weeks. That's not leadership. (In fact, all it does is stop the bleeding, preventing depositors from moving their money to the european banks. It is a tough sell to claim leadership when you are merely the last player to enter a race to the bottom.) Next, it shows that, far from leading the US out of crisis, he's not even a participant. In announcing a plan that's already being implemented, he shows us that he has no idea what the regulators are currently doing. He's neither an innovator, or a leader. In fact, the crisis and the government's response to it are moving right along under his radar. That's not leadership. It's ignorance.
http://www.fdic.gov/news/news/press/2008/pr08100.html

Shorter Scalia:

If we don't suspend the constitution whenever the president wants, we're all gonna die (pdf)!

Medellin v. Texas

Thank you SCOTUS for gutting the Supremacy Clause.