Ametrin

Alternative Bailout Plan: Good and Bad Ideas

There is no difference between insurance and buying the bonds themselves. It is only a balance sheet transformation. Scrap the idea!

Suspending the mark-to-market rule will not improve theconfidence in the banking system. It will rather erode it.

There are two things to do:
1. Increase depositor insurance -> Improved confidence among depositors
2. Buy equity in the troubled companies -> Improved balance sheets and counterparty confidence, which will enable banks to lend again.

The basic principle in solving the Swedish banking crisis, was quite similar to what the FED did with Freddie and Fannie. The shareholders take the first hit.

The Irish solution is not a bad idea. That will give the banks some time to sort out the liquidity problems. Bad banks will still fail, but not due to lack of liquidity. They might fail due to substantial losses on bad investments, which is fair.