In a diary a few days ago I responded to a challenge to describe an alternative to the approach Obama has chosen with Larry Summers and William Geithner. What I said in a comment there, with some modification and expansion, is worth repeating on its own. Progressives shouldn't be left sniping at the only (pro-Wall-Street) plan on the table. Here is what I believe a true Progressive plan to reform banking in the US should look like:
1. An FDIC/RTC style receivership plan should be implemented immediately to rid the banking system of toxic assets.
2. The "good bank" proposal of William Buiter, by which capital is poured into new or existing good banks for immediate and future safe lending, should be adopted.
(continued below)
A version of this diary is cross-posted at The Economic Populist
3. $1 billion should be authorized to hire lawyers and accountants to pore over Wall Street's and mortgage brokers' books, and institute mass prosecutions of any engaged in fraudulent activities, together with a requirement of disengorgement of phony profits.
4. A clearinghouse for CDO's should be opened within 60 days to immediately get a transparent, free market to set an evaluation for them.
5. Congress pass a law voiding all Credit Default Swaps in which the insurance being bought was not on behalf of a party requiring that insurance for its direct business purposes, with the return of the deposit to the counterparty, for any event that had not yet happened.
6. Any financial institution deemed "too big to fail" should be broken up using antitrust laws.
7. Congress should pass a law requiring that all debt or leverage of any sort being used by any business be reported to the FDIC (the purpose being to find out how much debt and leverage is in the system), and give the FDIC authority to rein in debt and leverage.
8. To deal with future "regulatory capture" such as the Bush Administration's SEC and Alan Greenspan at the Fed, Congress should pass a law vesting a sufficient number of States' Attorneys' General (e.g., half or more) the right to bring an Action in Mandamus in Federal Court to force Federal agencies to enforce existing laws and regulations, or else allow the States to enforce them until the Federal agency does its job.
9. To implement these plans, Kansas City Fed Chief Tom Hoenig, who said that the "too big to fail" doctrine itself was a failure, should be appointed Chief Economic Advisor to the President. UMB President William Koenig, whose bank was well managed, avoided toxic debt instruments, and turned down Tarp money, should be nominated to be Secretary of the Treasury.