Wednesday, September 17, 2008

How about a "too big to fail" tax? How about bringing back the RTC?

Boy, isn’t it hard to believe that a major insurance holding company and a major investment bank both threw most of their assets into the toilet by “insuring” uncreditworthy home purchasers?

Remedies about. In an op-ed on p A17 of the Sept. 17 New York Times, Johnathan G. S. Koppell proposes a “failure tax” as an antidote for the topheavy corporate dominoes that are “too big to fail,” until they do. He says that the Fed and Treasury department are starting to act like claims adjusters themselves, after a financial Katrina. So why not charge a coastal risk premium? The link is here.

CNBC suggests bringing back a Resolution Trust Corporation (which was merged into the FDIC in 1995).

Some lessons should be learned from the past. After the savings and loan scandals of the late 1980s, the RTC and various entities used arcane rules to go after defaulting borrowers for default judgments after foreclosures. James A. Wiedemer documented all of these horrific events in his largely forgotten 1992 paperback. A Homeowner's Guide to Foreclosure: How to Protect your Home and your Rights.

Returing to the uptick rule for short sellers is another suggestion that sounds like common sense.

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