The Financial Times has had a number of recent views on the US’s banking morass, amid examining its own predicament with the same. Martin Wolf’s take on US Treasury’s most recent strategic direction is insightful reading for its view from outside our shores by a seasoned eye.

I don’t agree with some of his ideas – nationalization or blowing up bank debtholders, like pensions, and sacrificing them to recovery – because these angles create an unworkable level of losses to parts of the financial system that have no way to recover before they have to begin paying out benefits to the ocean of baby boomers. These things would hogtie the US to infinite subsidies of its largest retirement generation that dwarfs the current working generations’ ability to pay for them.

But he sees the principal constraints that are keeping our political leadership from doing the smart things:

  • fear of how much it will cost preventing necessary things from being done
  • a petulant focus on “pettifogging”, which is wasting resources on populist headline items such as bonuses and planes, while the real mess – insolvent banks – burns through the nation’s net worth
  • a paucity of political will and financial literacy in DC to make policies that attack the problem and instead throw spaceships of public debt at it and “hope” it goes away (good grief Charlie Brown…)

Another piece done by John Authers is brief but possesses a dose of the Brits dry wit. It equates US Treasury’s latest effort to the plot within an older UK comedy, where a forever confident servant is sure that he has a “cunning plan” to get his master out of difficulties…though he has not worked out the details. This does not stop him from being convinced that the latest cunning plan will prevail.

To this end, the Post is running a story today, citing decision makers involved directly with Treasury’s latest reform and those near them, on how the Treasury Secty’s original bank recovery plan blew up about 48 hours before he wanted to release it for $ and reasons of political will. He apparently then hastily defaulted to what was released, which was an older idea based on the original TARP and Federal Reserve views. It seems the Treasury team is chafed at the limitations of Congressional and White House understanding of our problem’s magnitude and wants that public.

The hardest part to digest in the Treasury rescue plan is that it principally relies on subsidizing the cannibals that created the system failure through negligent practices and risk modeling (pvt equity & hedge funds) - to act like cannibals again and magically extract us from the troubles. They are apparently seen as the only ones with sufficient non-public money remaining. But you have to look right past their disastrous years long practice of leveraging their clients up with unserviceable amounts of debt (i.e. your state’s pension fund, endowments etc.) to fund grossly misguided takeovers that earned them profane levels of fees. Now that’s quite the cunning plan, for the cannibals.