Organising the grass roots or, as they say there Main St, against the Wall St banking rip off looks like one of them. Link to Showdown in Chicago.

Hat tip to Ann Pettifor of debtonation.  As she says…

I am always humbled by the reminder that after the 1929 Crash, the United States turned towards progressive politicians – notably FDR – while Europe turned towards fascism.

There is a warning to us Europeans in that history.

“The sooner we force the administration to explain why it is NOT pursuing debt-for-equity swaps or debtholder haircuts, the sooner everyone will realize that they’re an excellent idea. (link to article)

To be fair other commentators  have been working up to the idea in terms of future policy.

“In truth, it’s not the shareholders of the American International Group who benefited most from its bailout; they were mostly wiped out. The great beneficiaries have been the creditors and counterparties at the other end of A.I.G.’s derivatives deals — firms like Goldman Sachs, Merrill Lynch, Deutsche Bank, Société Générale, Barclays and UBS.

Smart Taxes has wondered about their apparent immunity to blame and pain before but we feared were missing something.  Not so.  The dam has burst – let the torrent roar!

Willem Buiter @ft.com/mavercom, 13 March 2009

Good Bank vs Bad Bank

The Good Bank solution differs significantly from the Bad Bank solution as regards its distributional implications, its medium-term and long-term incentive effects and its immediate financial stability impact.

Under the Bad Bank approach, the authorities either purchase toxic assets from the banks that made the toxic investments/loans, or they guarantee (insure) these toxic assets.  Toxic assets are assets whose fair value cannot be determined with any degree of accuracy.  Clean assets are assets whose fair value can easily be determined.  Clean assets can be good assets (assets whose fair value equals their notional or face value) or bad assets (assets whose fair value is below their notional or face value).   When the authorities acquire the toxic assets outright, they establish a legal entity to manage these assets – the Bad Bank.  The publicly-owned Bad Bank either sells these toxic assets as and when they cease to be toxic and a liquid market for them re-emerges, or holds them to maturity.

Under the Bad Bank approach, the legacy banks, either sans the toxic assets or with the toxic assets guaranteed by the state, live to fight another day.  The presumption is that the state overpays for the toxic assets.  The price it pays is certainly greater than the immediate liquidation value of the assets by their owners.  It is also likely to exceed the present discounted value of the future cash flows of the assets, or their hold-to-maturity value.  Similarly, the cost of any guarantees provided by the state in the case where the toxic assets continue to be held by the banks, is likely to be less than the fair value of these guarantees.  Link to full article

Today’s Irish Times reports that the government has hired Peter Bacon

to assess the possibility of creating a “bad bank” or risk insurance scheme to take so-called toxic debts off the banks’ balance sheets in a bid to free up new lending.

I know I’m at risk of sounding like a broken record on this topic but, given its importance, I’ll add my latest two cents on this. I’m not in favour of either this form of “bad bank” or a risk insurance scheme. Link to article

Written by Simon Johnson in the Baseline Scenario

February 16, 2009 at 9:30 am

The prevailing consensus on any economic policy is a fascinating beast.  For years it can stay put, seemingly immovable, and even – in some cases – becoming enshrined in legislation or central bank statute.  One day it begins to shake, ever so slightly; under the pressure of events, a wider range of serious opinion develops.  And then, all of a sudden, the consensus breaks and you are running hard to keep up. We saw this last year with regard to discretionary fiscal policy – fiscal stimulus – in the US.  Eighteen months ago, very few mainstream economists or other policy analysts would have suggested that the US respond to the threat of recession with a large spending increase/tax cut.  The consensus – based on long years of experience and research – was that discretionary fiscal policy generates as many problems as it solves.  To argue against this consensus was to bang your head against a brick wall, while also being regarded as not completely serious.

Link here for rest of article