We have been arguing, here and elsewhere, for a banking approach centered around scaling up FDIC-interventions. Part of the pushback is (1) Congress won’t provide any more money, (2) there is no point in even going to ask, and (3) if you did go ask, that could be destabilizing.
In that context, I’m encouraged by the moves in and around the Senate at the end of last week to increase the resources available to the FDIC (for details, see my assessment on The New Republic’s site this morning). The Administration seems to be taking the lead and key senators are coming on board.
There are still a lot of pieces that can go wrong: the vaunted “stress test” looks weak, the signals on banks from the Fed and Treasury are mixed at best, and the banking lobby is digging in for a long struggle. And the world economy is going to put severe pressure on any approach.
But eventually we will turn a corner and, at that point, the FDIC will likely play a central role.