More parables of the crisis
... this one relevant to the "Geithner Plan", and the business of providing subsidies via FDIC guarantees ...
Reader, imagine that you are a very bad person. Imagine, in fact, that you are Al Capone, and you have been paying off the local DA for the last forever. Now, a sudden crisis has hit your organisation, and you need a great deal of help, that you know you are going to have to pay for.
Which option is likely to be more cost-effective - to pay a larger bribe to your friendly DA, or to suddenly try to open up a new bribe relationship with some other DAs from neighbouring districts who you've never really dealt with before? Which course of action is more likely to get someone to play ball? Which is more likely to have unforeseen consequences that land you in the slammer?
Is a "bribe," then, an arrangement whereby government officials make under-the-table payments to shenanigans-perpetrating private citizens in order to prevent said citizens from forcing said officials to scrutinize said shenanigans?
ReplyDeleteIn this case, the word "bribe" is just in there to make the parable look more interesting. The point is (I have given up on leaving these open-ended) that there are a lot of tacit understandings and arrangements between the government and the banks, and that the Geithner plan appears to assume that similar relationships can be set up with a whole new set of counterparties, quickly and without exorbitant cost.
ReplyDeleteWhat new set of counterparties? Same parties: big business and politicians.
ReplyDeleteThese guys
ReplyDeleteBut surely the private asset managers will include many of the usual suspects?
I'll play.
ReplyDeleteWhat, if anything, do we know about the neighboring DAs? Do we know their financial situation? Do we know anyone who is already is a "relationship" with said DAs? How long have they been on the force? Are they friends with the chief? What is the history of DAs from that area?
How bad is the trouble my organization is in? What has been the going rate for the service I need in the past? Can I sweeten the deal without cash?
Too many known unknowns.
vachon
It is a bit tricky this D^2 business of refusing to comment on GFC and then just being obscure.
ReplyDeleteIs Al Capone the banks?
DAs = FDIC?
How have they been paying off the DAs?
One generic comment I would make is that once a DA has taken the bribe then they are "bent" and so subject to extortion. There is also a risk going to a new DA on being busted, as all DAs not bent. I think you could say that Treasury is compromised in this manner.
What about this: you're not paying off the DA; you make your cousin Vinny the DA. The Mayor agrees, because who's to know better how to catch you than your own cousin?
ReplyDeletethe point is, that if you want to bail out the banks, the way to do it is to bail out the banks. To go about your aim of bailing out the banks by creating legal structure C which contracts with industry D, which borrows money from E with a guarantee provided by F, and then purchases assets from the banks, in the hope that this sequence of transactions will end up with the banks being bailed out, is a bad idea.
ReplyDeleteAnother parable might be to suggest that useful comparisons might be drawn between the relative merits of the plastic contraption in the game "Mousetrap", and the normal kind.
that if you want to bail out the banks, the way to do it is to bail out the banks
ReplyDeleteRight, except that politically it may be an extremely unwise thing to do.
You want to bail out the banks, but most of the population (whose money it is) may (understandably) view it differently. Thus you may want to - both - bail out the banks and cover your tracks well.
Define "banks".
ReplyDeleteThere is a difference between "bailing out senior unsecured creditors and everyone above them" and "bailing out and failing to prosecute the specific members of a corrupt financial elite that has failed miserably at their jobs, but has proven very diligent at providing no-work multimillion dollar gigs for former and future government officials, particularly those with an uncanny resemblance to Jabba the Hut".