Odd terms

Isn't it funny how they call them the "toxic assets"?  OK, a lot of them aren't worth very much.  But would it not be better to speak of the "toxic liabilities"?  This may sound like a semantic point, but the toxic assets terminology breeds the idea that the mere creation of a "bad bank," built from these assets, will boost the financial system.  It won't.

Overpaying for the toxic assets is another matter entirely.  Yves Smith, by the way, has a good critique of current bank aid proposals and of course Paul Krugman has been making related arguments.  The frightening thing is that many brilliant people — such as those on the Obama team — think this is the best we can do, all constraints taken into account.  We'll see, as they say.

The other development is the proposal to limit executive pay to $500,000 for any bank taking "large amounts" of bailout funds; maybe that is the secret plan for keeping the bailout plan affordable.  The drawback is that it discourages relatively healthy banks from using the funds to buy out the sick banks which, although it sounds inappropriate, is actually one of the better chances for making the program work.


Comments for this post are closed