Chicago Looses Another Record

In 1984, a Chicago-based bank, Continental Illinois, went bust. With $40 billion in assets, it was the largest bank failure in US history.

Until last night. That's when Washington Mutual failed. They had $309 billion in assets, so now Seattle gets the dubious honor.

In other news, John McCain rode into the Capitol astride a white horse and leading his victorious troops (the 1st Lobbyist Division), marching at Port Briefcase, to rescue our financial markets. After getting his picture taken in the same room with President Bush, the deal went bust. Gee, coincidence?

Now that the "Paulson Plan" appears dead or at least wounded, everybody and their brother are coming up with new ideas. The Wall Street Journal had three in their editorial pages today. The one I actually like, and came out as the paper's official plan, is something they are calling Preferred Plan. Basically, instead of buying securities, Treasury would buy preferred stock with common stock warrants in sick institutions. The advantages:

1) Companies get recapitalized and are able to make loans.
2) Stockholders take any and all losses.
3) Institutions have strong incentives to make the illiquid loans work (AKA "re-negotiate and keep people in their houses.")

I guess we'll see if somebody can generate the leadership to get something passed.

update

So now we can have a debate. Here's the kicker - what the hell changed? We still don't have a deal, and the only news in the linked article is that McCain reached across his own party's aisle to get the Republican House to send a negotiator!

Send a negotiator? McCain had to "suspend" (kinda sorta maybe if you look at it in bad light) his campaign to persuade his own party to send somebody to the meeting? Whiskey Tango Foxtrot, over?

Laugh or Cry

So the House Republican Caucus proposal is online (PDF). The "plan" is on page 3. The House thinks:

1) That "too much private capital is sitting on the sidelines." Oh? Would that be in the pockets of folks who just watched WaMu, et. al., go to zero? I thought that the private capital was running for the exits, which was why yields on T-bills have twice this week hit zero!

2) This capital can be brought out by tax relief. What kind of relief isn't specified in this document. If, as suggested in other places, they are talking about capital gains tax, I'd have to say they're smoking weed. The mortgage-backed investments would be sold at a loss, and the only incentive to do so is a capital-gains writeoff.

3) Auditing failed companies, not securitizing additional unsound mortgages and a commission should be formed. Isn't that rather like locking the barn door after the horse has left?