Former Federal Deposit Insurance Corporation (FDIC) chairman William Isaac spoke out against the current financial reform bill. Isaac says the troubles stem from the 2008 Troubled Asset Relief Program, more commonly known as TARP – the $700 billion bank bailout that followed the financial collapse.
Isaac has suggested that the subprime crisis and collapse of the economy could have been remedied by curtailing abuse of the short sale system in the stock market, or by revising mark-to-market accounting regulations that “needlessly destroyed $500 billion of capital in the financial system,” as well as allowing “the FDIC and the Fed (Federal Reserve Bank) to use their extraordinary powers to contain the crisis.”
The current financial bill, which includes new mark-to-market accounting rules, has become a political issue. Isaac said, “the Treasury itself decided about two weeks after TARP became law that it was a bad idea and never used it for its intended purpose — purchasing toxic assets from the banks.” This has become a source of contention for politicians who supported passage of TARP.
William Isaac currently serves as chairman of Global Financial Services for LECG, a global economic consulting firm.
When you have a mess on your hands, it’s human nature to look around to learn from others’ mistakes and success. Of course when looking to clean up a worldwide economic meltdown, parallels are, well, not quite parallel.
Nonetheless TARP overseer Elizabeth Warren felt it right to criticize that the Obama administration’s approach toward resuscitating the financial sector lacked proper transparency and accountability, resembling the Japan model for economic recovery that dragged on for nearly a decade. She instead urged the administration to learn from the success the Swedes enjoyed when they pulled their banks out of the drink in 1992.
Hold on a minute. Maybe the Swedes were more transparent, but they sure had a lot less to look at. The total cost of the Swede’s bailout was about what Bank of America alone received in federal funds. Only two Swedish banks were in serious trouble, whereas in the U.S. 360 received TARP funds. Numerous U.S. banks are global entities, while there is probably not a person south of Kristianstad who can even name a single Swedish bank. And finally, not only is everyone in Sweden is Swedish, they actually like having a government owning shares of their banks.
Here more people would call that socialism than a good idea.
Ms Warren? Looking to Sweden for guidance is like looking to your condo association’s special assessment as a model for filling New York City’s deficit.
You’re from Harvard. Certainly you can come up with better criticism than that. Instead of throwing rocks, give us a clue about how the Swede’s plan can scale up from a $15 billion solution to fit a $700 billion problem.