Legal Commentary

Fox Newser Kondracke Touts GOP "Sweden" Plan

By Big Tent Democrat

At RCP, Mort Kondracke touts Republican House member Paul Ryan's (R-WI) "Sweden" plan for addressing the financial crisis:

In the case of the bank crisis -- and other areas of economic policy, too -- Obama and his top advisers ought to mix it up regularly with conservative Rep. Paul Ryan (R-Wis.), who, they would discover, has some constructive ideas that Obama might adopt. Such as: Instead of injecting vast new cash into the banks, institute a system of government insurance guarantees to protect asset-holders against losses. Also, triage the banks and commence a Resolution Trust Corporation-style liquidation of those that can't be saved.

(Emphasis supplied.) This is in essence, the Sweden plan. There is a hitch however. Ryan proposes:

Ryan also has long advocated partly suspending the mark-to-market rule for valuing bank assets. The current accounting rule pegs securities at zero if no one will buy them, even though, since most people pay their mortgages on time, the assets actually have value.

In principle, abandoning mark to market can make sense. In practice, it is likely to be a "backdoor free lunch bailout" for the financial institutions. Because it is so vulnerable to abuse, I think it is a bad idea for today's circumstances. The reality is saving current financials stakeholders (shareholders and debt holders) has to be a very back end concern. Finding a solution to the country's concerns must trump all concern for our "Masters of the Universe."

Speaking for me only

Full post as published by TalkLeft on March 20, 2009 (boomark / email).