Any number of sensible bank plans would work — choose one
For a long time we have had the outline of a plan to stabilize the financial sector. This must be the top priority of government policy; after all, the economy cannot be fixed, whatever the stimulus plan, without the banking system being fixed first. Our bank plan would stabilize the financial institutions almost immediately, in part by removing the deadly “nationalization trade” that, enabled by Obama’s awful plan, is killing the stock market:
(a) Treasury buys zero or low dividend preferred stock in whatever amounts necessary to convince the market that the large banks are going to be kept viable;
(b) Government gets two directors, of the Jack Welch, Bob Crandall, or Paul Volcker type;
(c) Mandatory mark-to-market is suspended for, say, three years, but banks getting government investment have to amortize the difference between book value and current market price of toxic assets over that period;
(d) Salaries are at market rates, but bonuses for top executives, as determined by the board’s compensation committee chaired by a government director, are deferred until the preferred stock investment has been paid back or refinanced;
(e) Obama reaffirms the Paulson policy that no systemically important financial institution will be allowed to fail.
If you don’t like ours, try the sensible alternative from the veterans of RTC days or those of other fellows. They all wind up pretty much in the same place — with investments that count as capital until they can be paid back — but do not make the devastating mistake of wiping out shareholders, the single most foolish move and virtually the only one that can turn a recession into a depression.