In the latest inexplicable move to extricate the U.S. banking system from crisis, the FDIC is reportedly close to asking the very banks it regulates for a loan to top up its balances. The plan is “strongly supported by bankers and their lobbyists” according to the New York Times.

Are you kidding me? This is the most preposterous thing I have heard yet. How is the FDIC suppose to adequately regulate banks when it owes them money? If your looking for a textbook route to regulatory capture, I present you Exhibit A. What’s more is banks are restricting lending right now. How is this going to help that situation?

The New York Times, like the even-handed mainstream media outlet it is supposed to be, reports this story like it is something truly reasonable.

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government. Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks. The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune. A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks. “It’s a nice irony,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. “Like so much of this crisis, this is an issue that involves the least worst options.” Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.

No, bankers like this idea because it makes the regulator beholden to the regulated. Am I wrong or is this the worst idea you have heard since this crisis began?

More here.

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