Below are some interesting and informative reactions to today’s bank bailout non-plan non-announcement.

Several points stand out for me:

1) Very establishment and stodgy figures are saying out loud that the time is here, or very near, for the dreaded bank nationalization (or as some one put it "pre-re-privatization").

2) More people are getting worried about the problem of how governments, including the US, will be able to finance a bigger economic stimulus to rescue the real economy, and at the same time, to rescue a financial system rescue/restructuring if the crisis is allowed to get worse and linger, and we are still trying to find money to muddle through several years from now.

3) Very establishment and stodgy figures are commenting on the hypocrisy of the US and the UK refusing to do what they have repeatedly recommended for smaller poorer countries during their financial panics (which includes "Swedish" style nationalizations, or special bankruptcy proceedings, for asset write-downs -whatever you want to call them).

Obama’s and Geithner’s rejections of bank "nationalization" later today in interviews were very weak, to be polite about it.

For one, when did the centrist, free market, financial bigshots ever go easy on a South Korea, or a Thailand, or a Mexico, or Argentina, because a painful or inconvenient economic adjustment was not in their ‘tradition’?

Both Obama and Geithner gave misleading answers when they said the US cannot nationalize because we have thousands of banks. No one is talking about nationalizing the whole banking system.

Most of those thousands of US banks are fine (unles we let the real economic and financial crisis fester, in which case they may not be fine much longer!) And if many banks are insolvent, the smaller ones can be handled by standard FDIC procedures.

Special federal programs for "bankrupt bank" bankruptcy procedures are only needed for the half a dozen or so giant banks that are so big that special procedures are needed in order to limit damage to the economy.

So, I think they both emitted bad faith, or truly stubborn, but definitely foolish, responses.But their attitude was telegraphed in some provisions of this sketchy plan, which went out of its way to promise to refrain from reasonable and responsible measures, and certainly within the governments rights to do, at this point. Why? Only because they might inconvenience a wealthy powerful and pampered financial industry, as far as I can see.
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Why Obama’s new Tarp will fail to rescue the banks
By Martin Wolf
Financial Times
http://www.ft.com/cms/s/0/9ebea1b8-f794-11dd-81f7-000077b07658.html

I have little doubt that … [banks are insolvent] … as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government…

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…Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing…

The Treasury’s Financial Stability Plan
James Hamilton
Econbrowser
http://www.econbrowser.com/archives/2009/02/the_treasurys_f.html

Hamiltion thinks that we are still on “Plan A”: “…hope that if we hold on tight and keep the ship from sinking long enough, everything will turn out OK"

Here’s what I don’t like… The Treasury is acting as though [The Federal Reserve] can step into the funding gap… … that will be OK if Plan A works out, that is, if things go well enough that the Fed’s losses on any assets acquired and loans extended are limited to the TARP funds already authorized. But if not, we’re back to the same calculation– the Treasury must borrow (if foreigners remain willing) and taxpayers must ultimately pay the bill. Either that, or the Fed just covers the bill by printing money for the whole thing.

…The Administration starts to think of the Federal Reserve as another cookie jar it can draw on to cover all these pesky bills which, if Plan A fails, we’ll find are impossible to pay by any means other than monetization and a huge inflation.

Roubini Expects U.S. to Play Stronger Role in Banks
Bloomberg News

Roubini says soon nationalization will be forced on the US government.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aymIvb5MXx_g

Some Views from before today’s “announcement”:

FT’s Wolf: U.S. Too "Politically Frightened" to Admit Truth About Banks
Interview with Martin Wolf
Yahoo Finance
http://finance.yahoo.com/tech-ticker/article/172003/FT%27s-Wolf-U.S.-Too-%22Politically-Frightened%22-to-Admit-Truth-About-Banks-Part-I?tickers=XLF,C,RBS,LYG,BCS,FAZ,SKF

Global financial crisis: IMF Outlines Dire Consequences if World Fails to Act on Banks
IMF Managing Director Dominique Strauss-Kahn pressed governments… to… reverse a slump in global trade and industrial activity by cleaning up the banking system…
http://www.imf.org/external/pubs/ft/survey/so/2009/NEW020709A.htm

He said the task for governments was to push the bank restructuring process forward—with an emphasis on cleansing balance sheets—using its authority to:

*Re-examine bank balance sheets on a worst-case basis, determine the viability of various institutions, and restructure them if required. Authorities need to be ready to respond as needed, including full-fledged intervention.

*Provide public support where necessary to banks that can be rehabilitated, in the form of capital, bad asset carve outs, and guarantees.

* Sell or wind-up insolvent banks quickly, depending on whether any franchise value remains.

* Establish new public resolution agencies to manage "bad assets" to maturity or sale. The United States and Western Europe could learn from the previous experience of countries like Korea, Malaysia, Thailand, and also Sweden, which set up public resolution agencies, and often recovered a lot of public money.

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So, things better turn up beyond current expectations soon (that is, ‘Plan A’ better pan out soon), or we will be at a very critical and dangerous situation, perhaps before, or during, the midterm elections.