Submission to the FDIC on the Legacy Loan Program

The FDIC has called requested submissions as to how the Legacy Loan Program should be run.

You can find the request here.

Given that we are publicly minded people with some expertise you can find our submission here.  

It should later be posted to the FDIC website.  At least it will if the FDIC keeps its promises.

The concerns I detail are the same as outlined on this blog - particularly conflict of interest, the appropriate degree of leverage and the continuance of Sheila Bair in her current position.

Read only if you are into boring government documnents.

I do however have lots of opinionated readers.  Give them good submissions.  It can't hurt.

John

Covering the Ricks short

Several months ago I put a short on Rick’s Cabaret – a listed strip club owner with a private jet.  The code of ethics covered use of the private jet.

I wondered what executives of a listed jiggly joint could do with a private jet that breaches their (rather narrowly written) code of ethics.  (The original post is here.)  

Anyway Ricks still looks like it will fail due to unrefinanceable debt – but the stock has been hammered and I covered recently.  

Not worth mentioning because the position was so small as to be for comedy value only.  [Also might make a visit tax deductible!  Stock research of course…  Just kidding – I never went.]

The old saying about Wall Street is that when the tide goes out you see who is swimming naked.  Nobody much swims in New York any more.  But boy do they dance.

Now the News Corp "Paper of Record" (The New York Post) reports former Wall Street analysts are jiggling at Ricks.  (See Axed Gals take Pole Positions.)  

Slogan for the 21st Century: When the tide goes out you get to see who is dancing naked.  

Come to think of it - not a great slogan.  Can you imagine what Sandy Weill or Dick Fuld look like?  

John

Also - before Wall Street gets high-and-mighty about this - the former Wall Street Analyst notes that the strip joint is run better than her former Wall Street firm (Morgan Stanley) and that the level of sexual harrassment is lower.  

Wall Street has much to be ashamed of - and not all of it is financial.  

Two days later this was added:

PPS.  It appears the New York Post story was false.  I was inclined to believe it because I am naturally short RICKS and the story was positive for Ricks.  

General rule as a stock picker: take seriously stories that are against your position - and not seriously stories that are in favour of your position.

General rule as a blogger or journo.  Believe nothing.

My bad.

PPPS:  I still think that Ricks can't refinance its debt.  But at this market cap I am not interested in staying short.  Ricks will go to zero though.

Sheila Bair is either a criminal or a grotesquely incompetent stark raving idiot

It is no secret that I do not like Sheila Bair.  My original reason for dislike was posted here.

But now she is open to deliberately allowing massive fraud against US Taxpayers.

There is a serious conflict of interest problem with the Geithner Plan.  These problems were first outlined by Steve Waldman in his “dark thoughts” post.  I noted that the application terms for the Geithner funds seem guaranteed to maximise conflict of interest.

In short – if you have a small interest in a fund (kindly levered to be large by the US taxpayer) and a big interest in a bank you have a massive incentive to overpay for the assets purchased from the bank sticking the losses to taxpayers and thus increasing the value of your bank holdings.

The defence of course is to have strict separation between the banks selling the assets and the Geithner Funds buying the assets.  Arms length separation is thus a basic and minimal requirement of the Geithner Plan.

However Sheila Bair is now open to letting banks selling assets participate in the Geithner funds.  This was reported in the WSJ – hat tip to Clusterstock.

I guess Sheila Bair can’t see a conflict of interest – only a “convergence of interest”.

However designing the plan to maximise theft is designing the plan to fail.  This is American politics – and rampant deliberate tampering with government procurement (ie criminality) is a possibility – but in Sheila Bair’s case I see only incompetence.

I am naturally attracted the Geithner plan.  I have stated that many times – but now I am plain sickened.  Sheila Bair should be removed from office if the Obama administration is to have any chance of succeeding.  This statement potentially maximising conflict of interest – and the possibility that criminal fraud is the driver – should be enough to impeach her.  Her defence – and in her case it is a solid defence – is incompetence.  And that determines the right outcome.  She should resign.  

Monetary union and banks - some thoughts

The biggest – and most consistent criticism that my last post received is that the national champions in Europe (particularly the Netherlands) are in deep trouble.

I was very careful describing how HSBC Hong Kong should be capitalised (separately and with very large – even 100% - capital charges for cross border funding).  If this had been done in the Netherlands there would be no trouble.  Even the Icelandic banks would have survived in Iceland - though their UK subsidiaries would be worm food.

The problem is that cross border funding by leveraged institutions is dangerous.  It almost caused Citibank to fail in the early 1990s.  It was a key part of the bank collapse in Korea.  In this cycle it was key in the Dutch banks, in Sweden as I wrote about here.  It was also key in Norway and Sweden during their famous bank collapse (here).

Monetary union and currency zones are famously dangerous for banks.  

But more to the point - banks intermediate current account deficits - and that can make country problems contagious.  

This leads to a question on which I express only a weak view.  In some sense the issue in America this time is also monetary union.  Because of the peg there is a sort of monetary union between China and the United States.  It was the supply of Chinese savings that – as much as anything – powered this boom. 

My question?  Is there a safe way of recycling all of those offshore dollars held in China and oil exporting countries?  If there is not then the value of having the reserve currency is massively overstated.

John

The case for letting bankers rip us off

In the last post I proposed the radical – but disagreeable – proposition that the right way to regulate banks is to allow them to rip us all off.

I didn't expect any support – but surprisingly I got some.  At least one commentator noted – as I would – that the only thing worse than bankers making outrageous profits is bankers not making outrageous profits.    

Several Canadians saw their banking system (bureaucratic, dull, profitable and stable) more or less as I saw the Australian system.  

In general – and one commentator actually raised this – I was suggesting we go back to a 3-6-3 banking world – where a banker took deposits at 3 percent, made loans at 6 percent and hit the golf course by 3 pm.   That was a fair summary except that maybe I lean towards a 3-7-3 system.  

Hong Kong was also raised.  Hong Kong had a formalized 3-7-3 system – where the bankers knocked off early every day except Friday.  On Fridays they went to the office of the governor of the currency board and set interest rates for next week.  A truly cozy oligopoly.

The wealth from the great Hong Kong oligopoly is what allowed HSBC to become “the world's local bank” (and America's stand-over merchant).

Of course semi-socialist banking completely killed all Hong Kong entrepreneurship and turned Hong Kong into the poor colonial trash of Asia.  

Ahem – actually it wasn't all that destructive.  

But the Hong Kong example gives the next clue in how a post-crisis banking system should be regulated.  If the Hong Kong subsidiary of HSBC – the extraordinary money machine – is separately capitalized then it will be bailed out.  But if the Hong Kong monies are all lent to the much larger US Subprime market then – hey – it could still fail.

So what you need to do if you are Hong Kong is insist that the Hong Kong subsidiary is a separately capitalized subsidiary and cannot inject money into any other HSBC subsidiary without a 100% capital charge.  The result would be that it would not matter whether the rest of the HSBC went to pot – the Hong Kong subsidiary – and hence Hong Kong – would be fine.  Even if it were insolvent it would be worth someone's while to recapitalize it.  HSBC Hong Kong was of course a goose laying golden eggs.

Some thought that Australia (and presumably Canada) were OK because of the commodity booms.  Sorry – no dice.  If you haven't noticed the commodity boom is over you are not watching the distress coming out of Western Australia.  

One objection to having really large banks (often expressed by Simon Johnson) is that really large banks are good at regulatory capture and that is a bad thing.  But I advocate much higher profitability for banks.  Regulatory capture is to be encouraged so long as it allows the banks – in the manner of a utility – to apply too much capital for reasonable incremental returns.  Regulatory capture in my view is a good thing.

Actually the only real objection I got was the one I expected which was the notion that Fannie and Freddie were my too-profitable-to-fail government mandated oligopoly and provided a counter-example.  Even that notion is garbage.  The peak profit net income of Fannie Mae was about 7 billion dollars – and it was typically in the 4-6 billion range.  The peak net income of Freddie Mac was about 10 billion but it was typically in the 3-4 billion range.  In almost every year the combined profit was under 10 billion.  And for that they took credit risk on over 5 trillion of mortgages.  They earned – at best – 20bps post tax on all risks they took.  The pre-tax fee for taking credit losses was typically about 20bps.  

The thing about Fannie and Freddie was that they were staggeringly unprofitable.  If Fannie and Freddie had earned even half a percent total credit exposure then they would have been so profitable that they would not have failed now.  

The problem with Fannie and Freddie is that they didn't convince regulators to increase their profit enough.  Very sad – but for all their legendary prowess lobbying they just failed miserably to score.  By the end they had regulators who were ideological warriors against their existence – a measure of their total lobbying failure.  What we needed was regulators who were far more captured by Fannie and Freddie.

The shadow banking system as the real competitor

The real problem with Fannie Mae – and with American and English banking – was that the shadow banking system became huge and a devastatingly effective competitor.  The shadow banking system shook margins to very low levels – so low that even Fannie and Freddie – with the seemingly overwhelming advantage of their quasi-government status – could barely eek out a profit.  

And no amount of lobbying – no matter how competent – could undo the huge competitive threat that Fannie and Freddie were under.  Fannie and Freddie's lobbying effort just wasn't up to it because the task was too hard.  The financial engineers who dreamed up the shadow banking system were just too clever.

The Pandora's box of financial innovation

And herein is the ultimate problem – that some of my commentators picked up on.  That is that the real driver of low margins in banking was the shadow banking system.  The highly paid people were the brokers and traders and hedge fund managers who made all that work.

And at the moment the shadow banking system is in ruins – and as a result pre-tax, pre-provision pre-trading loss  profitability of banks (or for that matter Fannie and Freddie) is rising sharply.  And we are getting to the sort of world I envisage, that of fat lazy banks with “lazy balance sheets” who have completely captured their regulators.

But unfortunately markets don't look like that.  Pandora can't put financial innovation back in its box – and when this crisis is over the shadow banking system will re-emerge to crush margins again.  

Of course we can stop it.  All those high-power, high-paid traders and brokers who are central to the shadow banking system should eventually be fired.  They are not necessary in my hoped for 3-7-3 world.  And they caused all the problems anyway.  Firing them now should be done so long as it does not exacerbate the current crisis.

And when the competition is gone even Fannie and Freddie can double or triple their margins – and even they will wind up costing taxpayers very little.  

Alas consumers will pay for the mistakes of the past – interest spreads (and hence rates paid by consumers) will be higher and that “tax” is what  recapitalizes our system and keep us out of future messes.  In first instance it is not good for consumers.

But it is not clear that consumers really benefited in the end from hyper low mortgage rates.  They just seemed to get capitalized into the value of houses – and that was part of the creation of our current predicament.  

Let me end with some stylised facts

This little rant of mine is contrary to the received wisdom both of my training (economics) and of the world we live in.  

But I digress.  

Economics is meant to be a science based on observation – but more often than not degenerates into an ideological slanging match.  Here are a few observations:

• Highly regulated – indeed price fixed – banking did not visibly hinder economic growth in Hong Kong.

• Highly indebted countries with highly oligopolistic banking systems and quite a lot of financial regulation are doing relatively well at the moment – see Australia, Canada, possibly Israel.  

• Fannie and Freddie may have made huge and seemingly formidable lobbying efforts – but those lobbying efforts failed miserably – with Fannie and Freddie combined profits never going about $10 billion for carrying about half of all mortgages in the United States.  This number seems large but is trivial relative to the size of the exposure or the stated profits of competitors.  

• The collapse of mortgage margins in the UK simply resulted in banks maintaining returns on equity by increasing leverage.  Bank profits did not fall – but bank risk – and system risk 
  

Some of these facts are uncomfortable because the facts do not fit my off-the-cuff economist's reaction.  They don't fit my usual presumption that markets and deregulation are mostly good.  And they argue that we are better off with nasty bureaucratic Australian banks than most the alternatives.  

But – to paraphrase Keynes – when the facts are inconsistent with my theory I change my mind.  What do you do sir?

John

Watch those baskets: Why Citigroup should be allowed to merge with Wells Fargo

There is a lot of woolly thinking about the right way to regulate banks post this crisis.  The consensus is that banks should never again be allowed to grow to be “too big to fail”.  The right banking system is one in which there are hundreds of banks – all sufficiently small that their failure does not cause systemic problems.  The argument is that Citigroup or Bank of America or whatever is bailed out as soon as it clearly returns to solvency it should be broken up.  

Indeed one of the cases cited for nationalisation is that it is much easier to break the banks up under government ownership than it is when there are private shareholders.

I think this consensus is absolutely cock-eyed wrong – and that the list of the blogging intellegentsia who are wrong on this covers pretty well every big-name economic pundit out there.

The division of American banking into thousands of banks did not help during the 1930s.

More bluntly I think the US should end this crisis with substantially fewer banks – which because they have a high degree of market power should be highly profitable.  The high level of profitability will

(a).  Reduce the incentive for banks to take excessive risks (if you have a goose that lays golden eggs it does not make sense to risk killing that goose), and

(b).  Increases the chance that the banks can work through any problems that they do have (because the underlying franchise will generate enough profit to fill any holes).

The strategy I advocate is to put your financial system eggs in relatively few baskets and to watch those baskets.

The experience of bank collapses

I have spent a bit of time looking at how banks collapse in countries other than the US.  The model I have in head is Taiwan.  Taiwan until relatively recently had about 50 banks.  This is in an economy about the size of a mid-ranking US State.  

The banks were highly competitive and margins were sickly thin.  Bank management respond to the high margins by increasing risk.  Its kind of odd but banks in highly non-competitive markets (eg Australia) have returns on equity of about 18 percent.  Banks in highly competitive markets seem to have equity returns of about 16 percent.  The difference is that in highly competitive markets the banks take more risk to get 16% and they tend to blow up with monotonous regularity.  A blow-up in Taiwan causing something looking like a local recession happens more than once a decade.

Every blow up results in the reduction of the number of banks.  As this happens the level of competition goes down and the profitability goes up.  At the end you wind up with a banking system like Australia – which has four super-profitable banks.  These four banks can survive almost anything because the pre-tax, pre-provision operating profit is so huge.  In Australia and New Zealand the numbers are almost 5 percent of GDP.

I know what I am doing is turning standard economic dogma (particularly amongst conservatives) on its head here.  The standard dogma (questioned by some with financial services) is that competition is almost everywhere a good thing.  But I would have the other view.  My view is that competition in financial services causes massive financial crises.

Much more instructive – and much more familiar to my English speaking readership is the UK recent experience.  The UK banking system was changed by massive competition in mortgages.  UK mortgage margins went to 40bps.  This was extraordinarily low and it was devastating to the UK banking system.  Various banks responded differently to it – Northern Rock levered its mortgage book about 60 times – and then very small changes in spread and credit blew it up (see my old notes here).  HBOS did similarly.  Royal Bank of Scotland bought everything that moved and also levered itself up.  Barclays decided to become one of the world's biggest investment banks.  The problems of the UK banking market were caused by too much competition compressing margins.  

Ditto – the problems in American finance were caused by massive competition from the new (and huge) shadow banking system.  You had mortgage companies spring from nowhere – and start originating huge quantities of mortgages.  Companies like Countrywide – which had very little capital indeed – could originate literally over a trillion dollars in mortgages.  

The financial innovation spread from personal to corporate finance – with all sorts of bizarre credit securitisations.  All of these things reduced margins.  The banks responded to reduced margins not by accepting reduced profit (something that in retrospect would have been the right course of action) but by increasing their risk profile (and hence profitability).  

It was the competition that caused things to blow up.

The counterfactual is Australia.  Australia is very similar to America – except that the consumer was even more in debt.  Our credit card industry was bigger (relative to GDP) as were our mortgages.  Our car loans were substantially lower.  But the consumer here was also fairly close to hocked out.  

However our banks are solvent.  There is only a remote chance that they will become insolvent despite a property boom that makes America's look modest.  They are solvent despite not being well run.  Indeed they are famously bureaucratic and inept.  I once worked for one after having worked for the government.  I can assure you the government department I worked for was far more competently run.  

The banks survive because they are just so profitable.  They are profitable despite being in an economy that should be sour (from indebtedness).  

What I am advocating is – that as a matter of policy – you should deliberately give up competition in financial services – and that you should do this by hide-bound regulation and by deliberately inducing financial service firms to merge to create stronger, larger and (most importantly) more anti-competitive entities.

The last thing you want to do is break up Citigroup.  It would be far better if it merged with Wells Fargo.

What does a post-competition banking system look like?

First the banks are going to be huge.  

They will lay enormous golden eggs for their shareholders.  I hope to be one!

These golden eggs will give the shareholders very strong incentive to act to preserve the banks.  Bob Dylan howled out that “when you got nothing you got nothing to lose”.  Like much of Bob Dylan it is the truth.  And the solution is to make sure the shareholders have something really good – so they have something to lose.

Because the goose lays golden eggs its management should be conservative.  Of course there will be agency problems – with management with incentives to lever up the golden egg laying goose as they will (via cashing their options) have a big part of the golden egg laying goose when it works – and if it doesn't work then the shareholders own the carcase.  So there will need to be corporate reform in such a way that shareholders can better protect their investment from managers.  (Carl Icahn's blog has plenty of worthwhile suggestions.)  

And – as a backstop there should be regulation – and the regulation should be stiffling.  It should limit competition and increase bank profitability.  Captured by the interests of shareholders (but maybe not management) is not a bad place for the regulator to be.

In the end I want this to look like a regulated utility.  Highly profitable and dull as dishwater.  The salaries should also look like a regulated utility (above average – but nothing special).  

The losses from my anti-competitive stance

The first and obvious loss is a generally higher cost of financial services as competition is constrained.  Essentially the anti-competitive strategy will reverse the benefit of cheap and widely available financial services created by the last two decades of financial innovation.  Such is life – that is what the credit crisis is doing – and the benefits of that have been overstated anyway.

The second loss is far more important – you lose the driver of financial innovation.  Competition isn't great because it lowers prices (although it does).  Competition is great because it rewards innovation – and allows companies or individuals who do innovative (usually better) things to thrive and grow.  Companies that don't innovate eventually wither.  This is the “creative destruction” of competition – and it is the greatest driver of capitalism.

Well the last decade and half has rewarded financial innovation above other forms of innovation.  The best and the brightest (and many of them really are very smart) have headed towards the financial sector because that is where the money is.  The best and the brightest do not (with the exception of my business partner*) leave university to join an electricity utility. 

If we remove competition in financial services we remove that chimera called financial innovation.  I argue that is a small loss.  Financial innovation is a chimera because it rewards individuals but creates massive societal risks (as this crisis demonstrates).  Real economy innovation is what drove income and wealth up throughout the 20th Century – and at the moment the failure of financial innovation is stifling real economy innovation through stifling the economy.  My strategy – four to six deliberately anti-competitive banks – is the death knell to financial engineering – and will sharply reduce the salaries of people in that business.  It is bad for New York but it will free the best-and-brightest to do something ultimately more important. 

A call for debate

This is a debate which it is important we have – because almost everybody (outside Australia) thinks differently to me.  That doesn't mean that I am wrong.  I come from a country that has been well served by its four banks – even though they are grotesquely incompetent and bureaucratic.  

John

*The business partner did wind up as CEO of the utility.

Why the Countrywide guys should be allowed to get mega-rich

Pimco is a bond management firm which has come through this crisis almost unscathed.  The monthly letters from Pimco are amongst the few must-reads of Wall Street.  I have no reason to believe that Pimco has ever acted with anything but integrity.

A few days ago I posted about cumulative loss data at Fannie Mae and Freddie Mac.  I pointed out that Fannie's credit on qualifying mortgages was consistently worse than Freddie's and asked for comments.  One comment suggested – and I have since confirmed – that the main difference was that Countrywide largely originated for Fannie – and was Fannie's largest source of loans.

Given that they used the same sort of computer data as everyone else it is likely that they were at best aggressive in how they confirmed mortgagee income and employment.  Its a culture thing. 

And given that the losses at Fannie and Freddie now appear to belong to the US Government these guys were not nice to taxpayers.

The guys from Countrywide have started a new firm – Penny Mac – which will deal in scratch-and-dint mortgages.  They clearly have some experience in the area.  The New York times wrote a story which was – at least editorially – a little sickened by how guys that manage to cause the crisis are now profiting from it.  The tone rings politically true.

The terms for the Geithner funds were written so that Pimco could (almost certainly) run one of the funds.  Indeed the terms appear to be written in a way as to maximise conflicts of interest.  This is a problem – because say $10 billion that Pimco puts up will give Pimco power to buy maybe $200 billion in bonds.

Pimco owns a lot of debt of large banks.  If they were to use that $200 billion for say $80 billion of overpayment as suggested by Steve Waldman then they could make good their huge holdings of bank debt.  They are conflicted.  The conflict is large.

By contrast if the Countrywide guys are to put in the bulk of their personal fortunes they are not conflicted.  (It would be almost everything they had – and they have no other remaining interests.)

The treasury should refuse Pimco's application and accept Penny Mac's if Penny Mac makes a decent submission.

Its an outcome that politically stinks.  It will deliver a fortune to the Countrywide guys.  It will sure play badly in the New York times.

But agency problems are at the core of how we got into this crisis – whether it be mortgage brokers with an incentive to say one thing and do another or whether it is traders who got paid huge bonuses when they lied about their mark-to-market profits or rating agencies who were paid by issuers of dodgy debt..

The Treasury should be writing the criteria to minimise agency problems – and instead they have written them to maximise agency problems.

This is not good.

John

The biggest problem with the Geithner plan

Is that the banks choose which assets to sell to the fund.

It allows selective price discovery on assets where the company taking the test selects the questions.

That doesn't prove anything except that banks taking self assessed exams for which the penalty is death tend to pass.

At least some assets should be put to auction either randomly selected or selected by the FDIC.  The bank doesn't need to take the price bid - but a price should be recorded.

Steve Waldman's dark musings

Steve Waldman (interfluidity) is my all time favourite blogger.  

We disagree on a lot - but his is the only blog I have ever back read every article on.  I really like smart people I disagree with.

Today he has some (very) dark musings about the Geithner plan.   His musing is that conflicts of interest could render the Geithner funds liable to massive fraud.

I agree.  

I remember chatting to a journalist about the Geithner plan and I suggested that one of the big problems is that almost everyone is conflicted – and conflict-of-interest with that much government participation poses a very serious fraud risk.  

The solution of course is to find non-conflicted funds.  

May I suggest – and I am only half joking here – Bronte Capital. 

The only problem is that the criteria for eligibility specifically include only those with a conflict of interest.  Here they are:

Fund Managers will be pre-qualified based upon criteria that are anticipated to include:

• Demonstrated capacity to raise at least $500 million of private capital.

• Demonstrated experience investing in Eligible Assets, including through performance track records.

• A minimum of $10 billion (market value) of Eligible Assets currently under management.

• Demonstrated operational capacity to manage the Funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers.

• Headquarters in the United States.

Given that we are start-up we fail the first, second, third, fourth criteria.  We are Australian and we fail the fifth criteria.

Now did I once say something positive about the Geithner plan?

Actually I have too much integrity to withdraw that – but the dark musings are to be taken seriously - and indeed the criteria described above are precisely the criteria you would pick if you want conflicted people to rip off the taxpayer.

John

Felix Salmon misrepresents me...

Felix Salmon mischaracterises my views… 

In particular he says

The status quo, absent any Treasury proposal, is basically the Hempton plan: let profitable-but-insolvent banks work their way slowly back to solvency by making large operating profits and not paying dividends. But the problem with the Hempton plan is that it only works on a kind of don't-ask-don't-tell basis: the banks can't be publicly insolvent, since then they need to be taken over by the government.

No.  My view is that we should have nationalisation after DUE PROCESS.  My view is that very few things will be nationalised – but I could be wrong.

What I like about the Geithner plan is that it provides PRICE DISCOVERY.

The price discovery gives regulators a process for marking the banks' books.  The bank “stress test” is no longer a “self assessed exam in which the punishment for failure is death” but an externally assessed exam, assessed by (admittedly subsidized) private money.

Once you have the true bank capital position determined you can allow the banks with adequate capital to muddle through (possibly with government liquidity support) and force the insolvent banks to raise capital.  If they can’t raise the capital you nationalise them.

As the exam is now objective – not self assessed – a lower capital standard (say a third normal) should be allowed.  High capital standards are really required in part because banks lie.  If they can’t lie a lower standard should be acceptable.  Moreover you suspend dividends whilst they muddle through.

Now the Geithner plan – done on a larger scale – can also support another policy objective.  If a bank comes to the Treasury and says “we are illiquid – help” the Treasury can now say “sell some assets”.  The bank cannot any longer claim there is no market for those assets – they can sell them to the Geithner plan fund(s).  

When they are forced to sell them the difference between illiquidity and insolvency will become clear.  If the assets sell near their book value then the bank really is just illiquid.  If large haircuts are required the bank is insolvent.  The government response can be dictated by a market price.

I never advocated that muddle through is the right policy.  I just happen to think that muddle through will work for most banks because most banks are not that insolvent.

But – after this process – I could be found to be wrong.  Very wrong.

And we will have nationalisations.  And they will not appear as theft because markets determined who was solvent and who was not.

John