Can we improve on the RTC bailout model?

When you think about it, the Resolution Trust Company set a pretty high bar. Created in 1989 to shutter failed thrifts and sell their assets, it was able to pay all obligations to depositors, even as hundreds of executives and directors were convicted. In sum, the RTC managed to sell $459 billion in assets and recovered much of the money that the government spent on failed banks. The cost to taxpayers ended up being about $140 billion, which was below the estimated $500 billion. And then, satisfied that the job was done, the RTC closed its doors forever. Former RTC execs stress that no shareholder received any taxpayer dollars.  

Can we apply the RTC model to the current crisis? Well, in many ways that's the what the bailout package is trying to do. But the New York Times makes clear that it will not necessarily be a snap. At the operational level, you had many people trying to game the RTC system. People who helped cause the crisis were barred from buying securities from the RTC, but that didn't stop them from trying. Some consultancies, part of the army of hired professional hands, tried to charge outsized fees. Hopefully, from an enforcement and oversight perspective, these are lessons that will be heeded. RTC-related scandals were demoralizing to say the least.  

It seems reasonable to expect the smart people at Treasury to come up with a workable system--especially for smaller banks. But initially, there could be some speed bumps; the upfront ad hoc costs of containing the crisis may be more than troublesome. The AP notes that the failed federal rescue package would have prevented most banks from profiting on the sale of assets to the government. A good thing. But it would have made an exception for assets acquired in a merger or buyout.  

So Citigroup will be able to sell Wachovia's distressed mortgage-related assets to the government for a profit. Not sure if that will sit well with people. This is not to second guess the deal. In many ways, it was necessary to find a buyer for a really troubled--and large--bank. The point here is that we can't assume that the bailout package is going to work like a charm. Hopefully in the end, we'll remember it as an RTC-like success, but there will be pain along the way. Here are 10 things we can learn.  - Jim

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