Andrew Ross Sorkin talks to Hank Paulson about the Dodd-Frank bill:
Mr. Paulson, who was speaking by phone from his longtime home in Barrington, Ill. — he recently put his home in Washington up for sale — was initially reluctant to weigh in. He said he had not read all 2,000 pages of the legislation. But as he began talking, despite his insistence that he didn’t want to answer my question, he did exactly that.
“We would have loved to have something like this for Lehman Brothers. There’s no doubt about it,” Mr. Paulson declared about midway into our conversation.
He was referring to a provision of the bill known as resolution authority, which would enable the government to unwind a failing investment bank or insurance company in an orderly way without forcing it into bankruptcy, thus avoiding the unintended consequences that a bankruptcy might create. . . [Emph. added]
I'm confused. If the government had seized Lehman, the way Paulson now says he wishes he’d had the power to do, the feds would have repaid Lehman’s unsecured creditors at either a) 100 cents on the dollar or b) something less than 100 cents on the dollar. If b had happened, the whole near-collapse of the financial system would have proceeded just as it did anyway.
If a had occurred, the too-big-to-fail policy would have been made more explicit than ever, and lenders to large institutions would have added confidence the government would backstop their loans, no matter what kind of crazy antics the institution was up to. So I don’t see why resolution authority is supposed to be such an improvement on the status quo. All it is is a huge expansion of government’s right to unilaterally seize private property.
Which, to my mind, is not a good thing. . .