TBTF

Naked Capitalism has a somewhat speculative but persuasive take (via Vu) on why the government still isn’t breaking up the too-big-to-fail banks.

…the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.

Buying the Bezzle

North Carolina’s Rep. Brad Miller (the Fightin’ 13th!) is trying to figure out what the banks are up to. More at MetaFilter.

John Kenneth Galbraith wrote that embezzlement is “the most interesting of crimes” for an economist. Embezzlement is almost always eventually discovered, but for a time results in “a net increase in psychic wealth,” when the embezzler “has his gain” and the victim doesn’t miss it. Galbraith called the undiscovered and therefore unfelt loss “the bezzle.”

According to Krugman, the stock in banks that are solvent only by virtue of an “optimistic” valuation of their assets “isn’t totally worthless,” but the stock’s value is “entirely based on the hope that shareholders will be rescued by a government bailout.” The “huge gift to banks shareholders at taxpayer expense,” Krugman said, was likely to be “disguised as ‘fair value’ purchases of toxic assets.”

So maybe insolvent banks are stalling for time, hoping that the economy turns around, that home prices will go back up, or that sick borrowers will get well and unemployed borrowers will find jobs. Maybe they want to enjoy the “psychic wealth” of paper solvency for as long as possible.

And maybe they’re hoping we’ll buy their bezzle.

Too Big to Fail

Nobody is happy about the terms of the Citi group bailout, which appears to be a simple handover of cash with no strings attached at all. When we give a company $7 billion more than it’s actually worth because it’s “too big to fail,” that shouldn’t be giving anymore—that should be buying. Mark Thoma has your link roundup, with more commentary from Matt Yglesias, Paul Krugman, Kevin Drum, and Marginal Revolution. The word of the day, you’ll find, is “ugh.”

While You Were Sleeping

While you were sleeping, capitalism apparently ended. I’ve been keenly aware of the emptiness of most free-market rhetoric, but nationalizing banks goes far beyond what I’d ever thought was in the realm of the possible. Our economy is entirely, astoundingly broken, just another gift of eight years of radical Republican misrule.

Elsewhere in the news and internets:

* The House has passed its energy bill over the objections of the Republicans, which Bush has threatened to veto. (See this post from last night for more on this.) Why the veto? Because it actually takes the Republicans up on their empty “all of the above” rhetoric. Right now this looks like some good political jujitsu from the Democrats—perhaps the first time I’ve ever had occasion to type that particular sentence.

* Harper’s has opened up its David Foster Wallace archives in memoriam.

* Someone in the club tonight is stealing my ideas.

* In a nearly exact inverse to the Citibank theft story the other day, a banker has been caught stealing $14 million dollars from the Royal Bank of Scotland, giving it to needy customers.

* Colbert’s getting his own Christmas special.

* Duke’s own Fredric Jameson has received the Holberg Prize.

* All American kids play video games: 99% of boys and 94% of girls, according to a recent study.

* Obama’s putting out a long, two-minute ad on the economy. That’s all well and good, but he should be running ads like the one Ezra proposes on Social Security night and day.

* Tantalizing news about the Chevy Volt.

* And the always amazing Big Picture blog has photographs of the aftermath of Hurricane Ike.