Today, the Federal Deposit Insurance Corporation announced the sale of Indymac Federal, which was once Indymac Bank until it went under and the FDIC took it over in order to protect depositors. Following standard procedures, the feds managed the bank -- in the process learning a thing or two about loan modification -- attempted to clear the balance sheets, and ultimately sold the company back into private hands. At a $10.7 billion loss. Losses on that scale -- Indymac was a much smaller bank than those causing real problems in the economy -- are a main concern of more aggressive government intervention. But compared to the costs, both to the institutions and the economy as a whole, of maintaining "zombie banks," the current practice, or even the still vague plan to produce a public-private market to price "toxic" assets, those kind of losses could look increasingly acceptable. With even former McCain adviser Doug Holtz-Eakin now advocating seizure, reorganization, and sale, policy-makers are hopefully converging on some kind of nationalization as the ideal solution. But given the size and complexity of the task, I'd be lying if I said I wasn't nervous.
-- Tim Fernholz
* Receivership, really, or federal management. But headlines call for broad terms ...
