I'm beginning to come around to the idea that the FDIC will play the single most important role in determining the way that the Geithner plan plays out. If the banking system is indeed as unhealthy as everybody thinks it is, the FDIC essentially has two choices: it can either ratify high prices being paid for toxic assets by extending financing guarantees for them, or it can force lower prices to be paid for toxic assets, force banks to mark their assets down to levels at which they violate their minimum capital requirements, and intervene to close those banks down.
So I fired off an email to the FDIC this morning, asking if I could talk to someone there about the role that the agency played in constructing the plan and the role it's going to play as the plan is implemented. I got this reply from a spokesman:
The FDIC is still reviewing the proposal. You should address your questions towards Treasury since it is their proposal.
In public, however, the FDIC gives every impression of being a big supporter of the plan. Its head, Sheila Bair, for instance, released this statement:
"Today's actions demonstrate the strong commitment of the FDIC, Fed, Treasury and the Administration to use creative and innovative programs to address the serious economic issues facing our country. The Legacy Loans Program, while providing substantial upside potential to private investors and the government, will also clear these troubled assets from banks balance sheets - enabling them to lend and restore economic growth."
And the FDIC's web page on the program says that it is being launched by "the FDIC and Treasury", rather than by Treasury alone.
There's one other important consideration to bear in mind here: the massive regulatory overhaul which is going to happen over the medium term. There's a crazy alphabet soup of regulators in Washington right now, and a lot of them are going to have to be abolished. Is the FDIC jockeying for position, here, making itself as indispensible as possible in an attempt to survive the coming upheaval? It's entirely possible.