Felix Salmon on the FDIC's new proposal to raise money from healthy banks, rather than going to Treasury:
There's one more problem with the proposal, under which, according to the NYT, "the lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry." If the bonds are coming from the government, that's likely to mean they'll be treated as government debt, and it certainly means that there's an implicit government guarantee there. Once again, the FDIC is using government guarantees, rather than real cash, and pretending that doing so doesn't cost the government anything. We've done that too many times already -- including in the Bear, BofA, and Citi bailouts -- and we should be putting an end to such shenanigans.
Amen. But I doubt this will change. Government officials don't care about saving money as much as the appearance of saving money. The odds are very good that by the time this government guarantee turns out to be expensive, Sheila Bair will not longer be around.