Lawrence J. Kramer

TARP Surtax Bill Could Create Millionaires

I think there's a decent chance this bill does not become law. The real reason is that it's unconsitutional and bad policy, but neither of those reasons are politically acceptable to the torch and pitchfork crowd, so some other pretext for scuttling the bill will have to be found.

It's all theater anyway, as the courts won't let the IRS collect a retroactive, confiscatory excise tax. Well, maybe not ALL theatre: the courts may strike down only the retroactive part, leaving the bad policy in place to tie the hands of managers going forward.

White House Pushes Mortgage 'Covered Bonds'

The difference between covered bonds and MBS's is that the bank's own money, er, its depositors' money, er, the FDIC's money, er, OUR money, is behind them. That's instead of the ratings agencies' reputation being behind them. Back when a triple-A rating meant something (way back in 2006 or so), there was no need for credit enhancement by the government. But now that ratings are not reliable, the rating of the PMI company backing the mortgages in an MBS is not reliable, and the rating on the MBS itself is not reliable (both because ratings are inherently unreliable and because somewhere in the credit-chain is the PMI company whose rating is unreliable), only the government's guaranty will restore confidence to the MBS buyer. So the MBS is tarted up as a bond of the IDI, and its rating - which will be AAA for all that's worth - becomes less important.

Because the whole purpose of these bonds is to increase confidence by making the IDI's/Depositors'/FDIC... assets the ultimate source of repayment, I doubt that Wall Street will find "creative ways of linking covered bond payments to the income generated by the trusts," at least not on the down side.