John Hempton describes what he thinks should happen after the Treasury’s Public-Private Investment Program is up and running:
I want the regulators to come into the banks and say – now you have a ready – if somewhat subsidized market for your assets then it is no longer tenable for you to say that the market price for them is unrealistic.
This asset that you have marked at 95% of par. We want you to sell some of it (or a part interest in it or similar.) If you get 75% of par – then we want you to mark your book to 75.
If – given a real market for bank assets – you are shown to be capital inadequate then you should have time (say 6 weeks) to raise private capital. Failing that your bank becomes government property. …
Nationalisation without process – which appears to be the alternative – is a dagger to the heart of capitalism.
Tell me a process that will have banks and regulators with adequate external parties indisputably saying to bank management “this asset should be marked at 75 and you have it marked 95” then I will listen. Until then the objectors to the Geithner Plan are left saying “nationalise now”, but without an answer to the nasty question of which banks to nationalise.
This is pretty much how I see it, too. It’s possible that Hempton and I are giving Tim Geithner too much credit to imagine that he might be thinking along these lines as well. But it’s also possible that the Krugmen of the world are giving him way too little credit.