Yet another argument for higher tax rates and bringing back corporate taxes. Banks would be much more willing to take a bath on their stupid mistakes if they could get a tax write off that was worth something.

There is more than one way for the government to share risks, but it is unfair if the government only shares the losses.

I have been involved in leasing mineral rights from the federal government and I can assure you that risk that the feds will renege on agreed terms is built into the lease bid. Along with a gazillion other variables. In the case of a multinational company, the U.S. is competing for capital against the rest of the world. The money goes to the best deal, with the definition of "best" including political risk.

If those who make these decisions, in this case the banks, had to take the 'hit' when they turned out to be bad ones.....no one would have to regulate them. They would follow their best interests knowing that bad decisions could mean economic death.

Under the current system, they can always count on the government to bail them out. The current bailout programs have only reinforced these beliefs.

I might add that the Swiss banks have been in business for 1,100 years. They don't depend on a government. They don't get bailed out.

They make good economic decisions.

To clarify, the original TALF was only for newly originated and structured ABS - the point wasn't to rescue banks from their bad decisions, but to give them (and non-bank lenders) access to cheaper funding and encourage private sector investors back to the market. Had they kept it that way, I think the investors would have had more confidence that there wouldn't be this sort of retroactive "punishment". Unfortunately, Geithner has decided to open it up to "legacy" securities, at least for RMBS, where it becomes much more of a subsidy for bad decisions and far more likely to be subject to a backlash. I think that was a bad mistake, but then the whole stress test/PPIP/TALF expansion stuff has been a bad joke and this part is arguably the smallest of the problems as far as the economy is concerned.

Now of course if the administration is really concerned about this issue, Obama could just say he would veto any bill that includes clawback/compensation limits for these programmes. There's no way the Democrats would get a veto-proof majority for them, given how the Republicans and Blue Dems have been acting. But of course he's not going to do that, even though it's his stated position that there shouldn't be any such restrictions on TALF participants. So the investors are just going to have to lump it. And frankly, $6.4bn of public, term issuance of ABS doesn't look so bad from this side of the Atlantic, where we've scarcely seen a public deal in any asset class for nine months. Absolutely everything is going to central banks and government funds.

The dopey antics of Paulson and Geithner are coming back to bite them and all of us. I want better grade of clown running my TARPs and TALFs and TURDs and TOUPEEs and TWIXes.

Ouch.

Hmm, well... maybe they can try his plan for a while anyway, just to see. If it doesn't work, at least that'll buy them some time to get their shit together for receivership.

I might add that the Swiss banks have been in business for 1,100 years. They don't depend on a government. They don't get bailed out.

And which alternative universe are you describing, El Viajero?

Suggest you google "swiss bank bailout" and see what you come up with.

All the more reason for the gov not to prop up these players but instead compete with them.

That is the lesson from the failed Hoover policies - the government fills the vacuum left by private entities until those entities are able to resume their role.

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Observer, people like Ezra and Obama are ideologically incapable of understand these banks have failed. They refuse to acknowledge it, and instead pretend that this is just a temporary problem that can be patched over if you throw enough money at it.

The idea that capitalism itself might have obvious problems, and that those problems will get increasingly worse as we peel back the aspects of this economy that get worse, is too alien for them. Ezra has been educated at elite institutions that drill into these folks heads the idea that capitalism is not only an economic, but a moral, system.

For them to aknowledge that it would fail would be akin to a fundemenetalist christian acknowledging that maybe the earth isn't really 6000 years old.

"more significant... is a fear that the government could retroactively change the terms..."

Well, why should this seem so unusual to a lending institution? They do it all the time themselves to their credit-card customers.

So there you go- the AIG bonus shtstorm that the media all whipped up and those ridiculous Congressional hearinga are directly responsible for the failure of a hundred billion dollar program.

But at least we got that $100m back, right? Way to save a tree when the forrest is burning.

leo- you have a good point on credit cards- the business practices there are disgraceful- but that's not relevant to this discussion.

But I totally agree with you- hopefully the extreme weakness of the consumer gives impetus to overhaul that sleazy industry.

(and yes, I realize my last post was riddle w typos)

It's all about the theft. The theft from the government, meaning the people, to benefit Wall Street. It's not that Obama and Geithner are incapable of understanding the situation, they just want to enrich their crooked pals to the tune of hundreds of billions before we figure out what is happening. We'll be left with the tab, meaning decades or lifetimes of starkly lower economic performance, a much higher tax burden, and much less social welfare. In a word, we're all in for what Marx called immiseration. Big time.