Today is tax day in the US when all good tax paying citizens file their tax returns. There is lot of noise coming from the Fox News Tea Bag crowd (GOP holdouts, former neocons, racists and the like) about a yet unverified number of Tea Bagging Parties happening across America.
It is also a day where more economists are joining Krugman in questioning the wisdom and in some cases the honesty of Obamas bail out plan for the banks. However the best critique I have, at least today, since it is written in plain english and I can understand it, is from Zach Carter at Mother Jones.
Carter explains how under Treasury Secretary Geithners plan, the US banks are being granted carte blanche to claim their assets are worth more than they really are worth. A sort of trust me accounting principle. Then as part of the federally funded buyout to bring stability back to the financial systems, the banks can sell those assets at the inflated prices.
The alternative according to Carter and Krugman is to allow the federal regulators to do their job, move in and set the true value for these assets. Then under current US law if there are not enough assets to cover the liabilities, place the bank into receivership, wiping out the shareholders and firing the executives in charge. Federal funds then back the shortfall in assets, protecting deposits and either turn the operation around or sell off assets, merging the remains with more other stable institutions.
This is what happened back in the 1980s when the US banking regulations were changed and last summer when federal regulators seized mortgage lender IndyMac. Although it is tough ride for the remaining shareholders, it is the most prudent action to take, both saving the US tax payer billions of dollars that would be wasted on the purchase of overpriced assets and reestablishing enforceable regulations into an industry that has truly run amok.
Instead as Carter sums up the Fed is propping up bankers who cooked their books to support a gambling binge that they still refuse to admit they lost.
Certainly something to consider on tax day.