My latest piece, published at Dissident Voice.

“Who Will Insure the Insurers?

Many members of Congress recognized, correctly, that the main thrust of the Paulson plan was to give more power to..well.. Paulson. But since the Paulson plan was defeated on Monday, some have been talking as though tweaking the Paulson plan on a couple of things would be enough to get it through next time. One tweak, they say, would be to have the government insure the bad loans on the books of financial institutions. This is somehow supposed to be an improvement on the plan that would make it acceptable to Republicans (along with the removal of mark-to-market accounting).

Insurance is actually already a part of the bill that was just defeated (Section 102). Section 102 would guarantee bad loans (sorry, troubled assets) by creating risk-based premiums to cover anticipated claims.

So, rather than buying bad loans, or failed banks (also bad ideas, in my opinion) which at least has the remote chance that the government would get the price increase if the loans (or banks) ever recovered their value, the government is proposing to guarantee the bad loans. That means if these troubled assets got less troubled…even positively robust...the banks that made the loans – not the government – would get the price increase. But if they don’t get better, who picks up the tab? Looks like the government.

An insurance fund offers the prospect of all kinds of interesting shenanigans. Banks could claim to make losses, while actually taking in profits. They could keep doing that for another whole cycle. The possibilities are endless for savvy professionals with degrees in math and sophisticated risk- models.

Why would I suspect these respectable institutions of doing any such thing? Because that’s just what they’ve been doing for a long time – as the ongoing FBI investigations into over two dozen of the firms involved in the bail- outs is showing……”